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Negative Growth and Higher Inflation Predicted by Hungary’s National Bank in Revised Forecast

Balázs Frei 2020.09.24.

The National Bank of Hungary now expects the economy to contract between 5.1 and 6.8% this year and annual inflation to be 3.5-3.6%, according to its latest quarterly Inflation Report released on Tuesday.

Assuming a V-shaped, rapid recovery from the economic downturn caused by the coronavirus pandemic, the institution previously forecast an annual GDP growth between 0.3 and 2.0% in their June report. The new forecast assumes a more gradual, swoosh-shaped recovery.

This new prediction is mostly in line with other recent estimates. Consistent with the more optimistic end of the National Bank’s forecast, as of mid-September the Ministry of Finance expects the GDP to fall by 5.1% this year. Slightly above the central bank’s expected range, according to their early July forecast, the European Commission anticipates that the Hungarian economy will contract by 7.0%.

Forint Falls Further as Hungary's Central Bank Holds Interest Rates Steady
Forint Falls Further as Hungary's Central Bank Holds Interest Rates Steady

In line with analysts’ expectations, the Monetary Council of the Central Bank of Hungary decided to keep the base interest rate at 0.60% at their regular meeting on Tuesday. The Forint has since fallen to a new five-month low against the Euro despite the Central Bank’s commitment to keeping inflation under control. In a statement […]Continue reading

The Central Bank also updated their forecasts for inflation. It now expects average annual inflation to be 3.5-3.6% by the end of the year, up from 3.2-3.3% in their June report, but still within the target tolerance range of 3.0±1.0%. This corresponds with the European Commission’s expectation of 3.5% inflation for the year. According to the Central Bank, at the end of August, inflation stood at around 3.9%. It would therefore have to come down until the end of December to meet their current prediction.

The Central Bank expects the economy to rebound next year, with predicted growth between 4.4 and 6.8% and inflation between 3.4 and 3.6%. The European Commission forecasts growth to be within the bank’s expected range at 6.0%, but estimates that inflation will be lower at 2.8%. The latter is likely due to changes in conditions since their report was published in July.

For 2022, the National Bank expects growth to be between 4.5 and 5.7% and inflation to be 3.0%. The institution predicts that economic activity will return to pre-pandemic levels by the beginning of that year.

Featured photo illustration by Szilárd Koszticsák/MTI