Mihály Varga, the economy minister of Hungary, said the views of external observers such as the European Commission send “a very important” message that the Hungarian economy is on the right track.
Speaking at an event in Salgótarján, in northern Hungary, Varga said “we are glad that our earlier critics are increasingly recognising our achievements…” Besides its upgraded growth forecast, the European Commission also sees the budget shortfall at 2.4% of GDP this year and 2.5% in 2018, well below the 3% required under Maastricht rules. Low deficits and robust growth also feed into a favourable trend in the declining public debt rate, which is expected to fall to 71.2% of GDP by the end of 2018, the ministry said, commenting on the the commission’s forecast.
The EC said, however, that Hungary’s 2016 growth was likely to clock in at 1.9% compared with the 2.1% growth it predicted in the autumn. Real GDP growth temporarily declined in 2016, mainly due to a 12.7% drop in investment in the first three quarters of the year which was associated with the changeover to a new planning period for EU investment funding, the EC said. The government’s agreement with the private sector on wage rises and a cut of payroll taxes is expected to have a positive effect on growth as higher wages boost consumption and lower taxes boost investment. At the same time, the rise in the minimum wage may also drive firms to substitute labour with capital.
Hungarian economic output grew by an annual 1.6 percent in the fourth quarter last year, according to Central Statistical Office (KSH) data published on Tuesday. In the full year of 2016, the economy grew by 2 percent, the KSH said. The government had expected growth to reach 2.1 percent in 2016, according to an updated forecast released in December. Fourth-quarter GDP was up 1.6pc when adjusted for calendar year effects, but rose 1.5pc when adjusted for seasonal effects, too. For the full year, GDP climbed 1.8pc when adjusted for calendar year effects and both calendar year and seasonal effects. In a quarter-on-quarter comparison, GDP was up an adjusted 0.4pc in Q4.
The Economy Ministry acknowledged that last year’s GDP growth was down from the 3.1 percent in 2015 but said that the decline could be attributed to the cyclical nature of the absorption of European Union funding. It stressed that, in spite of the slower growth, Hungary’s external and internal balances continued to improve, noting a record 10 billion euro trade surplus and budget deficit well under the threshold of 3 percent of GDP. Growth is set to accelerate noticeably from 2017 on the back of a six-year wage agreement, improved competitiveness and growing demand, the ministry said. Growth will be supported further by a home purchase subsidy scheme for families with children, a pickup in payouts in the new EU funding cycle and improved industrial performance, it added.The ministry earlier forecast GDP growth at 4.1 percent for 2017 and 4.3 percent in 2018.
Takarékbank analyst Gergely Suppan said this year’s output could grow by 3.6 percent, lifted by base effects and an uptick in household consumption supported by wage increases. He put next year’s growth rate around 4 percent. ING Bank chief analyst Péter Virovacz projected the 2017 growth rate on the upside of 3.4 percent as consumption grows and investments expand.
via hungarymatters.hu and MTI; photo: Noémi Bruzák – MTI