Trends are favourable in the short term

Trends in the Hungarian economy of the first half of the year have continued in the past few months, and no substantial changes can be expected until mid-2018. Owing to the surge of EU transfers and their budgetary advance payments as well as the pre-election demand boost, the economic growth rate reached 3.8 per cent, which is above the EU average but it is among the lowest in the CEE region. Although GDP growth is driven by investments, consumption is also rising fast. Although external and internal equilibria deteriorate slightly, and inflation accelerates, this is not a problem for the time being. The trends are favourable in the short term; however, long-term solutions are still missing.

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Compared to its peak, GKI’s economic sentiment index fell in October

Compared to its historic peak in September, GKI’s economic sentiment index fell slightly in October. According to the empirical survey conducted by GKI with the support of the EU, this was the result of some deterioration in business expectations as consumer expectations improved slightly, within the statistical margin of error.

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Forecast for 2017-2018

Following the continuous spectacular expansion in investments in the second quarter of 2017, GKI raised its GDP forecast for 2017 from 3.5 per cent to 3.8 per cent, and it expects a similar growth rate for 2018 as well. This is a significant acceleration compared to the 2 per cent rate in 2016, driven by the renewed inflow of EU transfers and the pre-election demand boost. At the same time, although the Hungarian growth rate is far above the EU average, it is only very modest in the CEE region. The close to 4 per cent GDP growth, the around 3.5 per cent consumption and the 20 per cent and 9 per cent growth rates of investments in 2017 and 2018 are very favourable indicators in themselves; however, they are unsustainable in the Hungarian model without EU transfers. The government will soon have to decide on the revision of its European policy, including its accession to the euro area, providing that it does not want to end up on the EU’s periphery, on a disadvantageous economic trajectory leaving to relative decline.

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GKI’s economic sentiment index reached another peak in September

After reaching historic peaks in July, GKI’s economic sentiment index and its business confidence index continued to rise in September. According to the empirical survey conducted by GKI with the support of the EU, almost all sectors have managed to exceed their best expectations at all times. Although consumer expectations deteriorated slightly in September, they still show strong optimism.

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Spectacular expansion of investments continued

The growth rate of the Hungarian economy was noticeably lower in the second quarter of 2017 than in the first one, and it was one of the lowest in the CEE region. However, it still exceeded the EU average. The spectacular expansion of investments continued, and on this basis, GKI raised its GDP forecast for 2017 to 3.8 per cent. The trends are favourable in the short term; however, long-term solutions are still missing.

You can download the forecast from here.

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