Financial analysts: Elections results ensure economic policy continuity

The ruling alliance’s sweeping win in Sunday’s election will ensure economic policy continuity, Fitch Ratings said on Monday.

In a note released in London, Fitch said this would support strong growth this year, though risks of macroeconomic imbalances emerging had increased.

Fidesz did not publish a manifesto, instead highlighting its record in government since 2010, Fitch noted, adding this pointed to economic policy continuity.

“We forecast growth to remain around 4 percent this year, partly due to another minimum wage increase.”

The budget deficit is likely to be kept below 3 percent of GDP, Fitch said, adding this was “an important policy anchor” keeping the public debt on its downward trajectory.

“We believe the central bank will only raise interest rates once inflation is firmly in the upper end of its target of 3 percent +/-1pp, which is not yet the case.”

Fitch pointed to the risk of imbalances in the wake of rapidly rising wages and housing prices. “Tighter policy is reflected in our 3 percent 2019 growth forecast.”

In a separate note released on Monday, financial consultancy Capital Economics said a more general economic challenge facing Fidesz in its third term was the late stage of the economic cycle.

After several years of rapid economic growth, capacity constraints are starting to mount, it said. Although inflation has been soft in recent months, it is likely to rise over the course of the coming parliamentary term, the consultancy added.

Economic growth is likely to be constrained by Hungary’s potential GDP growth rate, which is around 2.0-2.5 percent, and there is a growing risk of monetary policy being kept too loose for too long, Capital Economics said.

Source: MTI