GDP growth: Modest acceleration expected to occur in second half

According to economic research corporation GKI, the growth of the Hungarian economy has been lagging behind in 2016 compared to that of last year and other countries of the region; however, some acceleration is likely to take place in the second half of 2016, vg.hu reported.

The Hungarian economy grew by only 1.7 % in the first half of 2016 as opposed to a 3.1 % increase in the first half of 2015. In addition, according to statistics used in the EU, the GDP growth was only 1.2 % in the first half of the year.

Although the growth in the second quarter of 2016 was considerably higher than in the first one, and further acceleration is expected, it is unlikely that the annual growth rate will reach 2.5 % as expected by the government or 2.8 % as projected by the National Bank of Hungary (MNB), GKI’s economic forecast claims.

GKI maintains its GDP growth forecast of 2 % for this year, but a lower growth rate is more probable than a higher.

The study also reveals that not only did Hungary’s GDP growth lag behind most of its regional competitors in the first half of 2016 – the Polish rate was 2.8 %, the Slovak 3.7 % and the Romanian 5 % – but the EU average, which was 1.8 %, as well.

Furthermore, GKI emphasizes that an implicit change aimed at deteriorating the disequilibria has been initiated in the economic policy in the past couple of months. Based on the quantitatively favourable figures at the beginning of the year, the government modified the 2016 budget in June, distributing some HUF 500 billion (EUR 1.62 billion).

Furthermore, the government has promised a package of economic stimulating measures by the autumn. In addition, it will have unavoidable expenditures due to, for example, the repeatedly recurring debts of hospitals.
The analysis also mentions that in the first half of the year industrial production was 2.3 % higher than a year ago, and in June the level of production was barely higher than in December last year. In the first half of 2016 the fall in construction output exceeded 25 %.

Thus, although the general government deficit was highly favourable in the first seven months, it is likely that it will be higher than the planned 2 % in 2016.

GKI also expects a modest reduction of general government debt-to GDP ratio (about 75 %), as the budgetary advances necessary to accelerate the initiation and absorption of EU tenders can only partially be balanced by that portion of the land auction revenues that are devoted for the reduction of debt. In addition, GDP will be lower than projected by the government, says the analysis.

Industrial production of this year exceeded that of last year by 2.3 %, and the level of production was barely higher in June than in December last year.

The fall in construction output was more than 25 % in the first half of 2016; however, increase could be seen since April compared to the previous month. In the second half of the year, better performance is expected in both sectors compared to the first half, the analysis reveals.

Retail sales have risen by more than 5 %, and a similar pace may be expected for the whole year.

Export, calculated in euro, grew by 2 % faster than import in the first half of 2016. Although the exchange ratios improved by 2.5 % in the first five months, the improvement is likely to become slower in the rest of the year as a result of the inclusion of last year’s drop in global energy prices into the base.

Gross earnings grew by 6 % in the first half of 2016, while real earnings by 7.5 %. Excluding those employed in public workfare schemes, real earnings grew by 7 % in the private sector and by 12 % in the public sector.

The price level remained unchanged in the first seven months, and the annual average rate of inflation will probably be around 0.5 %. According to the analysis, real earnings are expected to increase by close to 7 % in 2016. All this may cause the acceleration of the increase in consumption, GKI claims.

edited by Gábor Hajnal

Source: http://www.vg.hu