Hungarian economy to grow 3 pct next year, inflation unlikely to surpass 3 pct in coming quarters

Household consumption continues to give a stable base for Hungary’s economy, noted KBC in a research report. In the second quarter, consumption had grown 5 percent year-on-year. Rising real wages and employment are mainly driving consumption growth. Taking the tightness of Hungary’s labor market into account, the higher net real wage growth might continue next year; however, the rise of employment is expected to decelerate, stated KBC.

As the consumers continue to keep a relatively high level of willingness to save, there appears to be room for additional demand coming from the lower saving rate in 2017. Even if the Hungarian economy is expected to expand just about 2 percent year-on-year this year, it is likely to grow to around 3 percent year-on-year in 2017, driven by the EU funds money usages, according to KBC. However, fundamentally the private investments continue to be still missing. This deteriorates the medium term outlook of Hungary’s economy.

Meanwhile, Hungary’s inflation continues to be below the 3 percent year-on-year target and is unlikely to surpass that level in the coming six quarters. This signifies that the Hungarian central bank might carry on with loose monetary policy, although no additional reduction in rate is expected. Some unconventional tools are expected to be introduced in the months ahead. The National Bank of Hungary concentrates on pushing down the reference rate on lending.