Domestic consumption to continue driving Hungarian economy, GDP likely to grow above 3.5 pct in 2017

Last year, the Hungarian economy had decelerated significantly because of the lower use of EU funds month and lack of investment. Domestic consumption mainly drove the economic growth and is expected to continue to boost the growth in 2017. The household consumption is underpinned by huge wage rise and some government measures such as moderation of VAT, social contribution fee, 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 central bank is expected to change its key instrument in 2017, most likely some repo instruction might replace the three-month depo instrument. The cap on 3-month depo might be moderated further in September, added KBC Market Research.

The central bank is still talking about further possible easing of monetary policy, although the economy is expanding above 3 percent, the jobless rate is below 5 percent and there is lack of labor force on the market. Also, core inflation is gradually increasing. Therefore, the macroeconomic figures do not affirm the additional need of monetary easing, said KBC Market Research.

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