A very fast growth can be expected in 2018 , it will slow down noticeably next year

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.

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Forecasts for 2018-2019

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.

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Growth faster than expected but slowing down

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.

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Hungarian economic growth probably reached its apex

The Hungarian economy grew by 4.4 per cent in both the last quarter of 2017 and the first quarter of 2018. A growth rate faster than this was registered only once in the past decade. This is the fourth or fifth highest rate in the CEE region, and Hungary is likely to be at the peak of its current business cycle. 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. In addition, external demand is expected to deteriorate rather than grow further.

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Hungary’s economic policy goals and the room of manoeuvring for the economy after the elections

The Hungarian economy grew by 4.4 per cent in both the last quarter of 2017 and the first quarter of 2018. A growth rate faster than this was registered only once in the past decade. This is the fourth or fifth highest rate in the CEE region, and Hungary is likely to be at the peak of its current business cycle. 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. In addition, external demand is expected to deteriorate rather than grow further. However, based on the better than expected figures of the first quarter, GKI raised its GDP forecast for 2018 to 4 per cent from 3.8 per cent and its consumption forecast to 4.5 per cent from 4 per cent. GKI raised its inflation projection to 3 per cent due to the rise in world oil prices and lowered the expected general government deficit to 2.2 per cent of GDP as a result of a shift in the government’s economic policy.

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