2019 – Good start, uncertain continuation

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.

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Forecast of GKI for 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.

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Tsunami of government programmes

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.

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Forecast for 2018/2019

The Hungarian economy grew faster than expected, by 4.9 per cent in the third quarter of 2018, and such quarterly rate has been unprecedented for thirteen years. The Hungarian GDP growth rate according to the EU methodology was more than double the EU average in the first three quar-ters of 2018, one of the fastest in the CEE region. This is certainly the zenith; the growth rate will slow down.

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Growth is fast but inflation is also fast

After a GDP growth rate of 4.8 per cent in the third quarter, which was one of the fastest rate in the EU, GKI, similarly to other forecasters, raised its GDP forecast, too (to 4.5 per cent). At the same time, GKI maintains its expectation of slowing down to 3.2 per cent in 2019. The reason for this is that the stimulating effects of EU transfers is decreasing, global economic growth is precarious, and there is still no prospect of improving competitiveness. Inflation is accelerating in 2018, and external and internal equilibria are deteriorating. In this regard, no change can be expected in 2019 either.

You can download the forecast from here.

The archive of earlier forecasts is available here.

More information.