As GDP, earnings and consumption grew faster than previously thought, GKI raised its 2018 GDP growth forecast from 3.8 per cent to 4 per cent. Although the foreign trade surplus is decreasing due to the rapid rise in domestic consumption, the external balance will continue to improve as a result of mounting EU transfers. Owing to the substantial advance payments from the general government necessary for accelerating EU transfers, the general government deficit in cash flow terms will be high and the decline in government debt will be modest. The EU is expecting an adjustment from the Hungarian government due to a high deficit compared to the favourable economic situation. Although the risk of escalating global trade war has declined, the Iranian, Turkish, and Italian situations have already had negative effects on energy prices and exchange rates.
Being at the helm for eight years, Fidesz-KDNP won a two-thirds majority in the parliamentary elections again on April 8th. This is expected to entail a stronger establishment of the one-centred Hungarian political model than before. The continued deterioration of competitiveness, the deepening conflicts with the EU and the uncertain decline in EU transfers after 2020 pose great challenges to the sustainability of this policy. The idea of drastically stimulating corporate and retail borrowing instead of strengthening competitive market conditions seems to be a new problem rather than a solution. However, the GDP growth rate may be close to 4 per cent in 2018.
Although Hungary’s GDP expanded slightly faster than expected in 2017, by 4 per cent and considerably faster than the EU average, its growth rate was moderate in the CEE region. GKI do not change its GDP forecast of 3.8 per cent and investments forecast of 9 per cent for 2018. However, it raises the projected increase in consumption from 3.5 per cent to 4 per cent. Although last year’s soar of construction slows down in 2018 due to the high statistical base, this sector continues to grow fastest. Similarly to last year, industry will grow by 5 per cent in 2018. The decline in agriculture in 2017 is expected to be followed by some increase this year. Public administration will stagnate, whereas some acceleration can be expected in the financial sector. Compared to its previous projections, GKI cut its inflation rate forecast from 3 per cent to 2.7 per cent, and its unemployment forecast from 4 per cent to 3.7 per cent.
In 2017 the Hungarian economy expanded faster than expected, by 4 per cent. Although this rate is much higher than the EU average of 2.6 per cent, it is only moderate in the CEE region. The GDP growth rate may be close to 4 per cent in 2018 as well. The 17 per cent increase in investments in 2017 will slow down to about half of it this year, whereas the rise of consumption over 4 per cent will essentially remain unchanged. Although developments in the general government differed significantly from those envisaged in the budget in 2017, there was no review of the 2018 budget. As a result, probably the third highest deficit in the EU (2.4 per cent of GDP) is planned in Hungary in 2018, without sufficient reserves for the future.
Similarly to 2017, the Hungarian economy is expected to grow at a rate close to 4 per cent in 2018. Although this rate is well above the EU average of slightly less than 2.5 per cent, it is moderate in the CEE region. The 20 per cent increase in investments in 2017 will slow down to about half of it this year, whereas the rise of consumption over 4 per cent will essentially remain in 2018 as well. However, the rate of the expansion of exports will be closer to that of imports. Incoming EU transfers will rise. Inflation will accelerate somewhat.