The Hungarian economy before elections

Although Hungary’s GDP expanded slightly faster than expected in 2017, by 4 per cent and considerably faster than the EU average, its growth rate was moderate in the CEE region. GKI do not change its GDP forecast of 3.8 per cent and investments forecast of 9 per cent for 2018. However, it raises the projected increase in consumption from 3.5 per cent to 4 per cent. Although last year’s soar of construction slows down in 2018 due to the high statistical base, this sector continues to grow fastest. Similarly to last year, industry will grow by 5 per cent in 2018. The decline in agriculture in 2017 is expected to be followed by some increase this year. Public administration will stagnate, whereas some acceleration can be expected in the financial sector. Compared to its previous projections, GKI cut its inflation rate forecast from 3 per cent to 2.7 per cent, and its unemployment forecast from 4 per cent to 3.7 per cent.

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Yesterday’s FDI dependency remains today’s reality

In 1990 Hungary decided to employ the then prevailing model of economic transition from a state run economy to one based on market principles. It entailed mass privatisations of previously state run companies and the opening up of its borders in front of international capital without much mitigation with regards to its destination and long term objectives.

A study by GKI researcher Máté Veres for the Friedrich Ebert Stiftung. Download the study from here.

Investments rose rapidly in 2017

In 2017 the Hungarian economy expanded faster than expected, by 4 per cent. Although this rate is much higher than the EU average of 2.6 per cent, it is only moderate in the CEE region. The GDP growth rate may be close to 4 per cent in 2018 as well. The 17 per cent increase in investments in 2017 will slow down to about half of it this year, whereas the rise of consumption over 4 per cent will essentially remain unchanged. Although developments in the general government differed significantly from those envisaged in the budget in 2017, there was no review of the 2018 budget. As a result, probably the third highest deficit in the EU (2.4 per cent of GDP) is planned in Hungary in 2018, without sufficient reserves for the future.

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GDP growth probably accelerated slightly in the fourth quarter of 2017

Similarly to 2017, the Hungarian economy is expected to grow at a rate close to 4 per cent in 2018. Although this rate is well above the EU average of slightly less than 2.5 per cent, it is moderate in the CEE region. The 20 per cent increase in investments in 2017 will slow down to about half of it this year, whereas the rise of consumption over 4 per cent will essentially remain in 2018 as well. However, the rate of the expansion of exports will be closer to that of imports. Incoming EU transfers will rise. Inflation will accelerate somewhat.

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Forecast for 2018

The Hungarian economy is proceeding on a path indicated in the September 2017 forecast of GKI. Economic growth accelerates due to the surge in EU transfers as well as the increase in consumption driven by steadily rising wages due to the forthcoming elections and a shortage of labour. After 2.2 per cent in 2016, GDP will grow by 3.8 per cent both in 2017 and 2018. Although this rate is well above the EU average, it is one of the lowest in the CEE region, and no major changes can be expected in 2018 in this regard.

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