The OECD raised its projection for GDP growth in 2020 to 3.3 percent from 3.0 percent, and it put growth in 2021 at 3.1 percent.
In a country note, the OECD said domestic demand is the “main driver” of growth. Household demand is being boosted by higher employment and real wages, record-high consumer confidence, home construction support schemes and “very accommodative” monetary policy, it said. Other investments are being lifted by absorption of European Union funding, capacity expansions, FDI in the automotive sector and supportive monetary policy, it added.
Private consumption will continue to drive growth as real incomes rise, but public investment will decelerate as payouts of EU funding decline, the OECD said. Capacity constraints will bolster business investment and imports, while the tightening labour market continues to push up wage and price inflation, it added.
Among the downside risks to growth, the OECD put rising inflation expectations caused by higher-than-projected wage increases and a further slowdown on Hungary’s export markets. Upside risks include lower-than-projected import price growth.
The OECD said fiscal policy will “remain supportive” and the National Bank of Hungary is expected to continue its loose monetary policy stance.
The OECD recommended counter-cyclical policy measures to address signs of overheating and inflation expectations, and it said policies bolstering labour mobility and labour supply, including the expansion of early childhood care, would prolong the recovery.