Hungarian GDP to expand 3 pct in 2017, inflation unlikely to surpass target rate in next six quarters

Hungary’s second quarter economic figured affirmed the view that the household consumption gives a stable base for the country’s economy as it rose by 5 percent year-on-year, according to KBC Market Research. Rising real wages and growing employment are mainly driving consumption in Hungary. Given the tightness in the nation’s labor market, the increased net real wage growth might remain the next year; however, the rise of employment is expected to decelerate.

As the consumers maintained the relatively high level saving willingness so far, there seems to be room for additional demand from the lower saving rate in 2017, stated KBC Market Research. Even if the GDP growth might come around at just 2 percent  in annual terms, the pace of the economic growth is expected to accelerate to about 3 percent year-on-year in 2017, owing to the EU funds money usages; however, fundamentally the private investments are still missing that weakens the Hungarian economy’s medium term outlook.

Meanwhile, inflation in Hungary continues to remain lower than the target rate of 3 percent year-on-year and it is not expected to surpass that level in the coming six quarters, according to KBC Market Research. This signifies that the National Bank of Hungary might continue to ease its monetary policy; however, additional rate cut is unlikely but unconventional tools might be introduced in the months ahead.

The Hungarian central bank concentrates on pushing down the Bubor rate (the reference rate of lending). The NBH also channels with its actions money into government bonds in the domestic financial sector that might keep bond yields at historic low level in the coming weeks, added KBC Market Research.

In the meantime, the EUR/HUF pair is at present trading at a relatively tight range. The fundamentals, such as the current account balance, high trade and falling external debt implies that the Hungarian forint might strengthen further, particularly in the current low interest environment.

“We see strong resistance level around 307.5 and 305, and we think that NBH's action may stop the HUF strengthening around those levels. In medium term we expect trading range between 305 and 313”, stated KBC Market Research.