Contrary to expectations, the Hungarian economy did not start to slow down in the first quarter of 2019, and it even accelerated to record speed. Based on this, GKI raised its forecast issued in March: GDP growth from 3.5 per cent to 4 per cent, investments from 7 per cent to 13 per cent, and consumption from 4 per cent to 4.3 per cent. As a result of the overheating of the economy, GKI expects that inflation will be much faster than previously thought (3.7 per cent instead of 3.2 per cent), and the surplus in the current and capital account will be significantly lower (only 1.4 per cent of GDP instead of 3.2 per cent).
In the first quarter of 2019 the Hungarian economy grew by 5.3 per cent, at a record speed. This rate is by far the fastest in the EU, together with Malta and Romania, the others not even reach 4 per cent. The EU average was 1.5 per cent and the euro area 1.2 per cent, the same as in the previous quarter. As a result of favourable Hungarian data, GKI, like other forecasters, raised its GDP forecast for 2019, from 3.5 per cent to 4 per cent. It is generally believed that a slowdown can be expected during the rest of the year. Projections typically envisage an average GDP growth rate of above 4 per cent in 2019.
In the first two months of 2019, the growth rates of the most important sectors of the Hungarian economy accelerated compared to last year. However, domestic economic expectations reached their two-year low in April. The EU’s economic sentiment index fell to its level measured three years ago, whereas the German business confidence index dropped to its level registered two and a half years ago. Various international growth forecasts suggest that the EU is slowing down in 2019.
Hungary’s GDP expanded by 5.1 per cent in the second half of 2018 year-on-year and by 4.9 per cent in 2018. This high growth rate has been unprecedented for 15 years. Due to the higher than formerly expected GDP growth rate and the stimulation measures of the government such as the family protection action plan, GKI raised its forecast for 2019 to 3.5 per cent in spite of deteriorating global projections. GDP growth has been driven by domestic demand for three consecutive years whereas the contribution of EU transfers to the acceleration of economic growth has moderated significantly. Inflation is picking up, and the pro-cyclical nature of Hungary’s economic policy is easing rather than disappearing. The corrections of economic policy do not touch the substance of the Hungarian model.
The Hungarian economy grew by 4.9 per cent in 2018, and it was probably the second fastest growth rate in the EU after Poland. In the past decades, faster growth was registered in Hungary only once, in 2004. All forecasts expect a significant slowdown in 2019. GKI predicts a rate of around 3.5 per cent. GDP growth in the EU is also slowing down, and the European Commission cut its growth forecast from 2 per cent to 1.5 per cent in 2019, after last year’s 2.1 per cent. Although the indicators of economic disequilibria are favourable (two credit rating agencies upgraded Hungary’s general government debt), the foreign trade surplus is falling significantly, and inflation and the general government deficit are among the highest in the EU. Over the past few weeks, a tsunami of government programmes swept across the country.