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.
Following the Fed’s raise in interest rates and the normalisation of American monetary policy, the European Central Bank has also embarked on a path of contractionary policy (a strategy that the National Bank of Hungary is yet to pursue). The change in international financial conditions, the possibility of a global trade war, the shock experienced by the Turkish financial system, as well as the uncertainty in the Italian political scene have all led to an outflow of capital from developing countries, including Hungary. After a few years of constant but modest decline in value, the forint depreciated significantly: from April to early July, the EUR/HUF exchange rate decreased by 6 percent, and the USD/HUF exchange rate fell by 10 percent, followed by a slight appreciation of the currency.
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.
The recently published medium-term forecast of GKI reveals, among others, that following an average annual decrease of 1.6 per cent in the 2008-2010 crisis period, GDP will return to the level of the previous three years in 2011-2013… Read More …