The European Commission raised its projection for Hungary’s GDP growth this year to 3.4% in a quarterly forecast. The projection was raised from 3.2% in a forecast published in November, but is still well under the government’s latest forecast for growth of 3.9%. The EC puts 2020 growth at 2.6%.
In a country note, the EC acknowledged that Hungary’s GDP growth had accelerated to almost 5% in 2018 but said the domestic cycle “has reached its peak”. Investment growth is forecast “to stabilise at a high level” relative to GDP in the coming years as the absorption of EU funds peaks and a temporary VAT reduction on home construction expires. The EC sees consumption growth “moderating” as the economy absorbs its labour reserves and employment and income growth slow. The EC said strong demand and labour cost growth is fuelling core inflation, but subdued oil prices are expected to keep headline inflation near 3% in 2019 and 2020.