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Inflation Forecasts Adjusted amid Growth Prospects

MTI-Hungary Today 2024.06.21.
The central building of the Hungarian National Bank

András Balatoni, Director of Economic Forecast and Analysis Directorate at the Hungarian National Bank (MNB), announced that inflation will be around the upper end of the central bank’s two to four percent tolerance band in the coming months, with core inflation expected to rise from the second quarter.

The MNB has lowered its annual average inflation forecast due to strong disinflation in recent months, presenting the June Inflation Report at an online press conference.

The quarterly economic forecast indicates that the MNB expects this year’s inflation to be in the 3.0-4.5 percent range, which is 0.5 percentage points lower than the March forecast.

However, the forecast for the next year and 2026, remains unchanged, with consumer price index growth expected to be between 2.5 and 3.5 percent in both years. The central bank’s GDP growth forecast for this year remains unchanged at 2.0-3.0 percent, with expected growth of 3.5-4.5 percent next year and 3-4 percent in 2026. Mr. Balatoni mentioned that annual inflation is expected to reach 4.5 percent in December.

He noted that the recent favorable inflationary environment has been helped by falling oil prices, but globally, the disinflationary process halted in the second quarter, with prices expected to rise later in the year. In Hungary, inflation increased from 3.7 percent in April to 4.0 percent in May, while core inflation fell from 4.1 percent to 4.0 percent but is expected to rise to around 5 percent year-on-year by the end of the year.

The slower deceleration of services inflation is a contributing factor, with the telecom and financial sectors showing higher-than-average inflation. Corporate profit growth has slowed, reflecting backward-looking pricing practices in these sectors. Corporate inflation expectations have returned to pre-COVID levels, while household expectations remain elevated and are tracking the decline in inflation more slowly.

András Balatoni highlighted the importance of easing the cautious behavior of the population, supported by rising real wages since September, for economic growth.

Household consumption and net exports are expected to contribute to economic growth this year, with broader-based growth after 2025. FDI investment is expected to become productive next year, improving export performance.

High-frequency data projects further acceleration in economic growth, with quarterly increases of 1.9 percent in Q2, 2.6 percent in Q3, and 3.9 percent in Q4. Public investment decline cannot be offset by rising private sector investment this year, but expansion is expected in 2025.

The labor market remains historically strong, with eased market tightness and fewer companies reporting labor shortages.

The external trade balance and the 12-month rolling balance are at all-time highs, with the current account surplus projected to rise to two percent of GDP this year. The government’s budget deficit target of 4.5 percent for this year is achievable with tight management. The central bank expects a budget deficit of 4.5-5.0 percent in 2024, necessary to reduce the debt ratio. The Inflation Report forecasts a budget deficit of 3.5-4.5 percent next year, unchanged from the March forecast.

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Via MTI; Featured Image: Wikipedia

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