Hungarian economy likely to expand 3.7 pct in 2017, internal demand to major drive growth

The Hungarian economy is likely to be majorly driven by internal demand in 2017. In the first quarter of this year, the GDP growth expanded to 4.2 percent year-on-year. Investments rose 28.4 percent, strongly aided by low base figures from 2016. Meanwhile, the actual consumption of households rose only 2.5 percent year-on-year.

Trade developments were upbeat, as the net exports’ contribution to GDP growth was a bit positive in the first quarter. Meanwhile, industry, services and construction were the main growth drivers. But, in spite of the better than anticipated first quarter GDP figure, the yearly growth rates exceeding 4 percent is unlikely to be sustainable in quarters ahead, noted Erste Group in a research report.

The Hungarian economic growth is likely to reach 3.7 percent this year, added Erste Group. The household consumption might be a vital growth driver, owing to the tight labor market conditions and the ongoing rapid-paced nominal wage growth that might result in a 7 percent to 8 percent year-on-year real wage rise.

The absorption of EU funds are expected to pick up, thus, investment might add to the economic growth. Risks surrounding the external trade channel have eased. Therefore, industrial exports might be a strong support to growth as well, stated Erste Group. Owing to the firming internal demand, imports can expand at a higher rate than exports, so the contribution of net exports might be a bit negative.