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The European Commission raised its projection for Hungary’s GDP growth this year to 3.7% from 3.4% in its latest quarterly forecast. The EC also raised the forecast for next year’s growth to 2.8% from 2.6%.

Hungary’s updated Convergence Programme puts growth in both years at 4.0%. The EC acknowledged Hungary’s economy grew at a pace of 4.9% in 2018, driven by construction investment, but said the expansion is “nearing its limits”. “Growth is set to lose momentum as capacity constraints limit the further expansion of domestic demand, while external demand remains subdued,” the EC said. The forecast projects private consumption growth will slow from 5.4% in 2018 to 4.9% in 2019 and 3.8% in 2020. The EC projects investment growth will decelerate from 16.5% in 2018 to 10.4% in 2019 and just 2.4% in 2020.

The forecast augurs “subdued” exports with slow growth in key export markets, while “buoyant” domestic demand is expected to keep import growth high, leading to current account deficits in 2019 and 2020. Consumer price inflation is set to rise to 3.2% in both 2019 and 2020, driven up by rapid growth of unit labour costs and consumption. The EC sees the general government deficit narrowing to 1.8% of GDP in 2019 and 1.6% in 2020.