The Organisation for Economic Cooperation and Development (OECD) raised economic growth forecasts for Hungary in its latest Economic Outlook released on Wednesday. This year’s GDP is seen growing by 4.6% as against the previous projection of 4.4%, while next year’s is expected to rise by 3.9% compared with the initial forecast of 3.6%. The government forecasts growth of 4.3% this year and 4.1% in 2019.
Growth is likely to ease in 2019 as capacity constraints bite, the report said. Real wage gains and employment expansion will support private consumption, while investment will be stimulated by private firms and the disbursement of EU structural funds, it added. Private consumption is expected to increase by 5.6% this year and by 4.7% next year. Total domestic demand is likely to grow by 5.2% in 2018 and by 4.9% in 2019, it said. Exports will benefit from robust external demand and new capacity expansion, though gains in market share will slow. Exports are forecast to grow by an annual 8.3% this year while imports may grow at an even faster clip of 9.6%, the report said.
Wage increases resulting from tighter labour market conditions will raise inflation, which is projected to exceed the central bank’s 3% target in early 2019, averaging 4% for the full year in 2018 and 2020. Only a slight decline in the budget deficit is projected in 2019. In order to sustain low inflation expectations, interest rates will have to be hiked, it said.
Risks are centred on a faster-than-expected pick-up in wages, further eroding cost competitiveness and unhinging inflation expectations. Hungary also remains vulnerable to any shock to demand for vehicles in its main export market, Germany, the report added.