While most forecasters project a GDP growth rate of 4-4.5 per cent for 2018, they—with the exception of the government—expect only 3-3.5 per cent for next year. (GKI projects at least 4.2 per cent this year, and only about 3.2 per cent next year.) The rate of increase in investments financed by EU transfers and in household consumption, boosted by the elections as well, is expected to slow down. In addition, the trends in European business activity are also uncertain. For the time being, fiscal and monetary policy is loose. Relations between Hungary and the EU are tense.
After a two-month decline following its historic peak in July, the GKI economic sentiment index rose slightly in October. According to the empirical survey conducted by GKI with the support of the EU, this was due to an improvement in business expectations as the consumer confidence index decreased somewhat.
The Hungarian economy grew by 4.8 per cent in the second quarter of 2018, and such quarterly rate has been unprecedented since 2005. The Hungarian GDP growth rate according to the EU methodology is double the EU average, one of the fastest in the CEE region. This is the zenith; the growth rate will slow down. The rate of increase in investments financed by pre-payments of EU transfers and in household consumption, boosted by the elections as well, is expected to slow down during the rest of the year. In addition, a slight deterioration is expected in external demand as well. Based on the better than expected figures of the second quarter, GKI raised its GDP forecast for 2018 to 4.2 per cent from 4 per cent and its investment forecast to 12 per cent from 9 per cent. However, it expects a marked slowdown in 2019, a growth rate of around 3.2 per cent. External equilibrium is likely to remain very favourable in 2019, inflation is expected to accelerate, and fiscal and monetary policy tighten only slowly. Possible corrections of economic policy will hardly affect the substance of the one-centred Hungarian political model.
The GKI economic sentiment index reached its historic peak in July and its lowest point this year in August. It continued to decline in September, and fell close to its level a year ago. According to the empirical survey conducted by GKI with the support of the EU, business expectations also reached their level a year ago, whereas the consumer confidence index rose after its decline in July and August.
Although the Hungarian economy grew faster than expected and most EU member states in the second quarter of 2018, its growth rate calculated by the EU methodology has been slowing down for six months. According to market forecasts, GDP growth will exceed 4 per cent in 2018 (GKI upgraded its forecast to 4.2 per cent). It will fall to nearly 3 per cent next year, which would be among the lowest in the CEE region where the decline will be more moderate. The rate of increase in investments financed by EU transfers and in household consumption, boosted by the elections as well, is expected to slow down during the rest of the year. There is growing uncertainty and slowdown in the EU, due to, for example, the Turkish and the Italian situation, the threat of a trade war and the Fed’s interest rate rises.