Budapest, May 10 (MTI) – The European Bank for Reconstruction and Development (EBRD) forecasts Hungarian economic growth of an annual 3 percent in 2017 and 2018, the organisation said on Wednesday in its latest Regional Economic Prospects report.
The EBRD raised its GDP growth forecast for 2017 from 2.4 percent.
The economic outlook has improved in Hungary on the back of personal income tax cuts and reductions in social security contributions, the report said.
Growth last year was curbed by a dramatic fall in investment and, as in most other EU new member states, public investments have dwindled since the start of 2016 due to the slow start of the new European Union 2014-20 funding cycle, the bank said, adding that with corporate credit still contracting, private investment growth was also downbeat.
In contrast, household consumption was up 5 percent, driven by real wage growth of 6 percent and the unemployment rate falling to just 4.2 percent in January 2017, the report said.
In 2017, cuts in social security contributions and the minimum wage increase will keep consumption strong but the emerging skill-mismatches and worsening demographic trends are expected to put further pressure on earnings, thus weighing on Hungary’s international competitiveness, the bank said.
The reduction of the corporate income tax to 9 percent, the lowest level in the EU, is expected to pep up corporate investment, however, the EBRD said.