Budapest, December 15 (MTI) – Inflows of European Union funding and external demand are ebbing, putting a drag on Hungarian economic growth in 2016, the central bank said in its quarterly Inflation Report released on Thursday.

This is likely to be offset by a reduction on VAT on home construction and steps by the central bank to support growth as well as a lower bank levy, the report said.

The bank forecasts the economy will slow to 2.5 percent next year from around 3 percent this year. It is expected to pick up to 3 percent again in 2017.

Growth will be increasingly driven by a recovery of domestic demand, supported by higher consumption and private investment, according to the report.

It forecasts household consumption expenditures will rise to 3.2 percent next year from a projected 3 percent in 2015 before slowing to 2.6 percent in 2017.

The National Bank of Hungary sees investments falling by 2 percent next year after stagnating in 2015. In 2017, however, investments are expected to grow by 3.6 percent.

The NBH cut its forecast for inflation next year to 1.7 percent in the report from 1.9 percent in the Inflation Report released in September. It forecast consumer price inflation of 2.6 percent in 2017, still below the central bank medium-term “price stability” target of 3 percent.

The Hungarian economy continues to enjoy a “highly favourable” global cost environment, the NBH said. Cost effects resulting in lower inflation are only expected to fade in the second half of the forecast horizon, it added.

Growth in household consumption and wages, as well as rising demand, may boost underlying inflation, but the impact may be softened by persistently low imported inflation, the NBH said. Additionally, a stronger anchoring of inflation expectations supports consistency between price and wage-setting decision and the inflation target, it added.

The NBH projects core inflation, which excludes volatile fuel and food prices, accelerating to 2.4 percent next year, from 1.3 percent forecast for this year. It will then pick up to 2.6 percent in 2017.


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