The investments will give a new impetus to the Hungarian industry.Continue reading
The Hungarian economy may expand at a slow pace of below 1% this year, partly due to the unfavorable international environment, but it could pick up and expand by more than 3% next year, according to the latest macroeconomic forecast by CIB Bank analysts.
Since the bank’s last forecast in May, the outlook for growth in the euro area has become gloomier, also weighing on the performance of domestic industry. Moreover, the deep crisis in the manufacturing sector is not forecasting a rapid improvement. Activity in the services sector is also sluggish, and the first cracks are starting to appear in the labor market, writes Világgazdaság.
Germany is still a laggard among the major economies, but inflation has already reached the central bank’s 2% target in October, thus a normalization of monetary policy is both necessary and possible, and the European Central Bank could cut its benchmark interest rate by another 25 basis points in December, according to CIB Bank.
Overseas, consumption-led growth in the United States remained solid in the third quarter and further progress was made on the inflation front. However, the market is now expecting more gradual rather than aggressive rate cuts as a result of better-than-expected growth.
Although the most important event of the year globally was the U.S. presidential election, ending with a confident victory for Donald Trump,
the new president’s term will not start until next year, January 20, and his economic policy plans are more likely to have a tangible impact from 2026-2027.
The promises made during the campaign suggest that this could mean faster growth in the short term, but slower growth in the longer term, with higher inflation.
“Following the third-quarter GDP data, which came in below even the most pessimistic expectations, we have again revised down our 2024 growth forecast: the annual expansion rate will definitely remain below 1%. The Hungarian Central Statistical Office (KSH) has not yet published the detailed breakdown, but the monthly data releases suggest that in the July-September period the expansion in the services sector was not able to offset the declining output in agriculture, construction, and industry. On the consumption side, the recovery in household consumption could continue this quarter, but we will have to wait for a turnaround in investment,” emphasized Mariann Trippon, Senior Analyst at CIB Bank.
However, the outlook for next year is much brighter, she noted, with GDP expanding slightly above 3%, but this will require a pick-up in external demand.
Rising real earnings, high household savings, and the unwinding of the prudence motive, coupled with lower financing costs, could lead to an expansion in consumption, which could drive GDP growth next year.
The labor market has faced challenges, with unemployment rising to 4.6% in the third quarter of 2023. Despite this, mass layoffs have been avoided, as companies anticipate a recovery in demand.
Inflation has moderated significantly, dropping to 3% year-on-year in September. High wage dynamics, global energy prices, and exchange rate fluctuations remain key risks.
CIB Bank expects Hungary’s central bank to maintain a cautious stance, keeping the base rate at 6.5% in the near term to support the forint.
However, as inflation stabilizes and global interest rate trends evolve, further rate cuts are anticipated in 2024, with the base rate potentially falling to 5.25% by the end of 2025.
The euro-for-euro exchange rate could remain above HUF 400 on average in 2024, influenced by global sentiment and domestic economic factors. The depreciation has not been halted by the pause in the Hungarian National Bank’s interest rate cut cycle, and the forint may be sensitive to country-specific negative news, therefore the MNB expects the euro to remain above HUF 400 on average next year as well.
Via Világgazdaság; Featured image via Facebook/Audi Hungaria Győr
