Domestic consumption likely to continue boosting Hungarian economic growth in 2017

Last year, the Hungarian economy decelerated significantly because of the lower use of EU funds money and lack of investment. Domestic consumption mainly drove the economic growth in 2016 and is expected to continue to boost the economy this year, noted KBC Market Research in a research report. Huge wage rise and some government measures underpin household consumption, while investment might be underpinned by the new EU funds inflows and corporate income tax cut in 2017.

“We expect above 3.5 percent Y/Y growth for 2017 up from around 2 percent Y/Y growth in 2016”, stated KBC Market Research.

Meanwhile, the Hungarian central bank maintained its base rate at 0.9 percent; however, it continued to use to the unconventional tools. The cap of 3-month deposit at HUF 900 billion was introduced, while the ON lending rate was eased to 0.9 percent. Even if any cut of base rate is unexpected in the months ahead, the National Bank of Hungary might further moderate the maximum amount that can be placed in 3-month deposit in the first quarter of 2017, which signifies that the effective benchmark interest rate might be eased further.

The actions of the National Bank of Hungary might keep the short-end of the curve at the current low level, while there are some upside risks on the long-end of the curve at the start of 2017. Therefore, some modest steepening is expected, added KBC Market Research.

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