Budapest, November 9 (MTI) – The OECD raised its projection for Hungary’s GDP growth next year to 2.4 percent in a forecast published on Monday from 2.2 percent in the previous outlook released in June.
The OECD stood by its 3.0 percent projection for Hungary’s growth this year.
It forecast — for the first time — GDP growth of 3.1 percent for 2017.
The economy ministry said in a statement that it welcomed the report, which evaluated Hungary’s economic prospects positively, especially in light of the general deterioration in global growth trends over the recent past. The ministry said that OECD’s forecast falls in line with the positive economic course that the government has outlined for Hungary. The reports of international organisations, credit-rating institutions and market players all testify to the fact that Hungary’s reforms are working, it added.
“Economic growth was strong in 2015 but is projected to slow in 2016 as public investment declines and the fiscal stance becomes less accommodative,” the OECD said.
“Activity should rebound in 2017 on the back of renewed public investment. Private demand should remain fairly robust over the coming two years,” it added.
The OECD sees private consumption growth picking up from 3.0 percent in 2015 to 3.2 percent in both of the following two years.
It sees investments falling by 3.2 percent next year, as the result of lower disbursement of European Union funding at the start of the new funding cycle, before recovering to 0.8 percent growth in 2017.
The OECD said domestic risks for the growth forecast were mainly on the upside, while downside risks were mostly external. With a concentration of automotive companies in its industrial sector, Hungary is vulnerable to fallout from the recent diesel engine rigging scandal; also, a faster-than-expected normalisation of monetary policy in the United States could force the National Bank of Hungary to tighten its own policy rate earlier than expected, it said.
The OECD projects Hungary’s budget deficit will narrow from 2.3 percent of GDP in 2015 to 1.9 percent next year and 1.5 percent in 2017, all well under the 3-percent Maastricht threshold.
Hungary’s public debt-to-GDP ratio is set to fall to 74.6 percent in 2016 and 72.0 percent in 2017.
The OECD noted that monetary policy remains “very accommodative” to the debt trend with the central bank policy rate at a record low.
Zoltan Csefalvay, Hungary’s permanent representative in the OECD, said that the OECD “still has more faith” in Hungary’s economy than the European Commission. Earlier this month, the EC projected an economic growth rate of 2.9 percent for 2015, 2.2 percent for next year, and 2.5 percent for 2017. Csefalvay said the OECD projected more favourable foreign trade figures than the EC, which had also projected a greater decline in infrastructure investments due to the transition between EU funding periods.
Csefalvay said that another reason why the OECD’s raised projections for Hungary were welcome was because despite global expansionary monetary policies and fiscal consolidation, the organisation once again cut its global growth forecast for 2015 to 2.9 percent.
The OECD commissioner noted that the OECD could not yet predict the impact of Europe’s refugee crisis on labour markets as “there are still too many unknowns”, such as the duration of the asylum procedure, the skills and qualifications of refugees and whether or not they are successfully integrated into society.