The European Commission confirmed its earlier projection for Hungary’s GDP growth this year of 4 percent in its Summer Interim Forecast published on Thursday.
The EC put 2019 GDP growth at 3.2 percent, also confirming its forecast published in May.
The official government forecasts for GDP growth are 4.3 percent for 2018 and 3.8 percent for 2019.
The European Commission said
“GDP growth remained steady at 1.2 percent quarter-on-quarter in the first quarter of 2018, supported mainly by domestic demand. However, exports failed to keep pace with rising import demand. Sentiment indicators have remained buoyant up to June, but recent production data indicate some slowdown in the second quarter. The level of industrial production has been flat since the beginning of the year, and construction output has decreased.”
Private consumption is set to grow robustly in 2018 with rising employment and dynamic real wage growth. Investment remains broad-based, supported by high capacity utilisation, rising public capital expenditure and the recovery of the real estate sector. The cyclical upswing of domestic demand is set to moderate in 2019, causing GDP growth to slow.
While domestic demand remains dynamic, the external environment has become less supportive. Growth in main export markets would remain moderate.
Consequently, Hungarian export growth may slow down in 2018, despite major new manufacturing capacities starting production.
The prominent role of the automotive industry makes the economy sensitive to global trade disputes, creating a new risk for the outlook, the Commission noted.
HICP inflation rose to 2.9 percent in May, as oil prices surged and the forint weakened. The weaker exchange rate may also raise non-energy prices in the coming quarters. The tight labour market and administrative wage hikes are maintaining upward pressure on wages, which will gradually feed into core inflation. Thus, HICP inflation is expected to remain near 3 percent throughout 2019. The aggregate effect of newly planned indirect tax measures on inflation is broadly neutral in 2019, the Commission said.