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OECD Becomes More Pessimistic About Hungary’s Short-Term Economic Growth

By Tamás Székely // 2016.06.02.

The Organisation for Economic Co-operation and Development (OECD) has lowered its growth forecast for Hungary’s economy to 1.6% from 2.4% in the previous Economic Outlook released in November 2015. In its new report, the OECD maintained its 3.1% projection for Hungarian GDP growth next year. The organisation said “growth is projected to moderate in 2016 due to a temporary contraction in public investment as a new cycle of EU structural funds commences, but should pick up again in 2017. Private demand should remain solid and employment should continue to expand”.

The OECD expects private consumption to rise by 3.7% this year and next, up from the 3.2% projection for both years in its previous report. Total domestic demand is expected to rise by 1.8% this year, then by 3.8% in 2017, faster than the earlier respective forecasts of 1.1% and 2%. Exports are forecast to grow by 3.7% this year before picking up to 5.5% next year, while imports are likely to rise by 3.7% and 6.6% respectively. The public-debt-to-GDP is expected to stand at 74.3% this year, then at 73.3% in 2017, as against the earlier respective forecasts of 74.6% and 72%.

The OECD said “the disappearance of economic slack and the one-off effects of lower energy prices will push up inflation during 2017.” Inflation is seen at 0.1% in 2016 and 1.7% in 2017, below the previous forecasts of 2.2% and 2.7% respectively. Unemployment is forecast to fall to 5.8% this year as opposed to the earlier forecast of 6.3%. The jobless rate may further ease to 5.3% in 2017, lower than the 5.9% projected in November. “Employment growth is being mainly driven by the private sector, although the expanding public work schemes continue to be an important factor behind the fall in unemployment”, the report said.

Ágnes Hornung, state secretary for finance at the economy ministry, said that the OECD’s budget and inflation expectations largely tied in with the government’s targets but its forecast for GDP growth in the short run diverges from the government’s projection. The OECD’s view of the growth outlook this year was coloured by data for the first quarter. Yet payments in the rest of the year are expected to speed up considerably and the government’s housing scheme is also expected to give a lift to construction and investments, which feed into economic growth, she said.

Poorer figures in the first quarter were driven by various technical problems in the vehicle industry but last year’s quick pace in the sector is expected to return, Hornung said. She noted the OECD’s recognition of positive developments on the labour market in terms of both the expanding employment market and the record low jobless rate. The fast pace of rising real incomes underpins consumption, she added. Both the OECD and the government expect the budget to show deficits of 1.9% this year. In 2017 the government sees a shortfall of 2.4% whereas the OECD expects the gap to be 2.6%, the state secretary said.

via and MTI