OECD lowers Hungary forecast for 2016 GDP growth

Budapest, June 1 (MTI) – The OECD has lowered its growth forecast for Hungary’s economy to 1.6 percent from 2.4 percent in the previous Economic Outlook released in November 2015.

In the report published on Wednesday, the OECD maintained its 3.1 percent projection for Hungarian GDP growth next year.

The organisation said “growth is projected to moderate in 2016 due to a temporary contraction in public investment as a new cycle of EU structural funds commences, but should pick up again in 2017. Private demand should remain solid and employment should continue to expand”.

The OECD expects private consumption to rise by 3.7 percent this year and next, up from the 3.2 percent projection for both years in its previous report.

Total domestic demand is expected to rise by 1.8 percent this year, then by 3.8 percent in 2017, faster than the earlier respective forecasts of 1.1 percent and 2 percent.

Exports are forecast to grow by 3.7 percent this year before picking up to 5.5 percent next year, while imports are likely to rise by 3.7 percent and 6.6 percent respectively.

The public-debt-to-GDP is expected to stand at 74.3 percent this year, then at 73.3 percent in 2017, as against the earlier respective forecasts of 74.6 percent and 72 percent.

The OECD said “the disappearance of economic slack and the one-off effects of lower energy prices will push up inflation during 2017.” Inflation is seen at 0.1 percent in 2016 and 1.7 percent in 2017, below the previous forecasts of 2.2 percent and 2.7 percent respectively.

Unemployment is forecast to fall to 5.8 percent this year as opposed to the earlier forecast of 6.3 percent. The jobless rate may further ease to 5.3 percent in 2017, lower than the 5.9 percent projected in November. “Employment growth is being mainly driven by the private sector, although the expanding public work schemes continue to be an important factor behind the fall in unemployment”, the report said.

Agnes Hornung, state secretary for finance at the economy ministry, said in a statement that the OECD’s budget and inflation expectations largely tied in with the government’s targets but its forecast for GDP growth in the short run diverges from the government’s projection. The OECD’s view of the growth outlook this year was coloured by data for the first quarter, she said. Yet payments in the rest of the year are expected to speed up considerably and the government’s housing scheme is also expected to give a lift to construction and investments, which feed into economic growth, she said.

Poorer figures in the first quarter were driven by various technical problems in the vehicle industry but last year’s quick pace in the sector is expected to return, Hornung said.

She noted the OECD’s recognition of positive developments on the labour market in terms of both the expanding employment market and the record low jobless rate. The fast pace of rising real incomes underpins consumption, she added.

Both the OECD and the government expect the budget to show deficits of 1.9 percent this year. In 2017 the government sees a shortfall of 2.4 percent whereas the OECD expects the gap to be 2.6 percent, the state secretary said.

Source: http://mtva.hu/hu/hungary-matters