Hungarian economic growth to slow in 2016, inflation likely to accelerate on base effect

In 2015, Hungary’s economy expanded strongly by 3%; however, the pace of growth is likely to slow in 2016, according to Commerzbank. This is because there are risks to German economy from Chinese economic slowdown, the boom in Hungarian auto industry is diminishing and the inflow of EU fund will stop in 2016 before starting again in 2017. Hungary’s PMI has dropped sharply in the past few months towards 50.

“We forecast slower 2.2% GDP growth during 2016”, noted Commerzbank.

Meanwhile, inflation in the nation is likely to rise in 2016 because of the base effect from reductions in utility price. The central bank recently reduced its forecast for headline inflation for this year to 0.3% from the earlier projection of 1.7% and for core inflation to 1.7%.

“The 2016 projections are now dovish enough, but downside risk exists for 2017 forecasts where MNB expects inflation to noticeably accelerate again, e.g. core inflation is forecast at 2.4% for 2017”, said Commerzbank.