The European Commission projects Hungary’s GDP will climb 5.0 percent this year in a spring economic forecast published on Wednesday.
The projection was raised from 4.0 percent in the EC’s winter forecast released in February.
Hungary’s government puts 2021 GDP growth at 4.3 percent.
The EC’s fresh projection for average GDP growth for the European Union is 4.2 percent.
The EC said Hungary’s economy was expected to expand by 5.5 percent in 2022.
“Household consumption is poised to rebound thanks to steady real income growth, and the increasing ability and willingness, of consumers to spend once restrictions are lifted,” the EC said.
It pointed to the improving labor market’s positive impact on household income, the gradual reintroduction of an annual pensioners’ bonus, and a personal income tax exemption for Hungarians under 25 from 2022.
Rising capacity utilization as well as government subsidies are expected to boost private investment, while grants from the EU’s Recovery and Resilience Facility (RRF) are expected to keep public investment at around 6.5 percent, the forecast said.
While growth in the manufacturing sector will benefit export growth, the revival of tourism “could take longer, extending beyond 2022”, the EC said.
The EC acknowledged that labor market slack in Q1 remained “low by historic standards”, adding that strong wage growth has persisted.
The EC said annualized CPI is expected to peak near 5 percent in April-May, lifted by higher commodity prices and excise tax increases, before receding. It added that core inflation could remain high due to the gradual pass-through of past currency depreciation and emerging price pressures following the reopening of the economy.
The EC sees average annual inflation rising to 4.0 percent – the upper threshold of the National Bank of Hungary’s 3.0 percent +/- one-percentage-point tolerance band – before falling to 3.2 percent in 2022.
Featured photo illustration by Zsolt Czeglédi/MTI