Stronger private and public consumption, rising absorption of EU funds to boost Hungarian economic growth in 2017

In the third quarter, Hungary’s economy witnessed a temporary deceleration in growth, predominately because of a decline in absorption of EU structural funds. Real GDP expanded 0.3 percent in sequential terms in the September quarter, suggesting an annual growth of 2.2 percent. But PMI continues to stay robust at 56.6 in November, mainly driven by a sharp rise in new orders.

“Given the weak Q3 number, we lower our real GDP growth forecast for 2016 somewhat, from 2.0 percent to 1.5 percent”, noted Danske Bank in a research report.

Next year, the Hungarian economic growth is likely to be stimulated by rising absorption of EU funds underpinning investment, stronger private consumption and a rise in public consumption before the general election in 2018. Therefore, the Hungarian economy is expected to improve, recording a growth of 3.2 percent in 2017, stated Danske Bank.

The underlying fiscal performance has been solid as tax collection continues to be strong because of rising corporate taxes and social security contributions. Meanwhile, expenditure has dropped considerably, assisted by falling interest payments and lower spending related to EU funds.

“We expect the 2016 deficit to amount to around 1 percent of GDP, significantly below the 3 percent of GDP EU benchmark. This provides room for significant fiscal loosening in 2017, which would raise the budget deficit slightly to 1.5 percent of GDP”, added Danske Bank.