GKI raised its growth forecast for this year very significantly to 7 per cent from 4.3 per cent in March. This is based on a faster-than-expected recovery from the crisis, faster growth compared to the previous quarter, which is already in its third quarter, the end of the third wave of the pandemic and favourable economic expectations. In March, GKI underestimated the export surplus in particular. This year, household consumption is expected to rise by 3-4 per cent and investments by 6 per cent. However, the internal and external equilibria are likely to be worse than assumed in March.
After an unprecedented rise in April, the GKI economic sentiment index continued to as-cend in May and June, but most recently only within the statistical margin of error. This brings the index back to its level at the beginning of last year preceding the pandemic. According to a survey conducted by GKI with the support of the EU, although business expectations regained earlier optimism faster already in May, they became slightly more pessimistic this June. However, the consumer confidence index continued to rise marked-ly in June, almost reaching its pre-crisis level.
After an unprecedentedly large rise in April, GKI’s economic sentiment index made a much smaller, but still significant step up in May, reaching its pre-pandemic level of Feb-ruary last year. The last time business expectations were optimistic like this was at the end of 2019, according to a survey conducted by GKI Economic Research Co. with the support of the EU, whereas consumer expectations were still below their pre-crisis levels of March last year.
After a modest decline in February, GKI’s economic sentiment index rose to a lesser ex-tent in March. However, it approached its otherwise fairly low top level since the start of the pandemic measured in January. According to a survey conducted by GKI Economic Research Co. with the support of the EU, expectations of all sectors examined and con-sumers, with the exception of services, improved slightly. At the same time, the econom-ic sentiment index did not offset even 60 per cent of its fall in April last year by March this year.
Due to better-than-expected Q4 data last year and relatively favourable economic expectations at the beginning of this year—despite the third wave of the pandemic and mixed data—GKI raised its growth forecast for 2021 by 0.6 percentage points to 4.3 per cent (4-4.5 per cent) compared to the end of last year. This brings Hungarian GDP close to, but not yet at, its 2019 level. The main negative risk of the projection is that the substantive restrictions caused by the pandemic will persist for a while in the second half of the year (either in Hungary or in its main trading partners). However, the approaching elections in 2022 may have a stimulating effect by encouraging the government to further loosen fiscal policy. According to GKI, employment and unemployment will remain broadly unchanged on an annual average but will improve over the course of the year. Real earnings will increase by 2 per cent, consumption by 3.5 per cent and investments by 6 per cent. Although the general government deficit is decreasing, it will be unreasonably high: after last year’s 8.1 per cent it could be around 6.5 per cent this year. Inflation is accelerating, it will be around 3.9 per cent after 3.3 per cent in 2020, and the forint will weaken further on an annual average, thus one euro will be worth at least HUF365 this year after HUF351 last year, and it cannot be ruled out that the National Bank of Hungary will be forced to tighten up. The external financing capacity will be in a stable surplus, due to the expected inflow of EU transfers. Although the international isolation of the Hungarian government is increasing, no change in policy is expected this year.