GKI: Forecast for 2019

By: Trademagazin Date: 2019. 06. 20. 09:05

Contrary to expectations, the Hungarian economy did not start to slow down in the first quarter of 2019, and it even accelerated to record speed. Based on this, GKI raised its forecast issued in March: GDP growth from 3.5 per cent to 4 per cent, investments from 7 per cent to 13 per cent, and consumption from 4 per cent to 4.3 per cent. As a result of the overheating of the economy, GKI expects that inflation will be much faster than previously thought (3.7 per cent instead of 3.2 per cent), and the surplus in the current and capital account will be significantly lower (only 1.4 per cent of GDP instead of 3.2 per cent). It is almost certain that a slowdown starts from the second quarter onwards, mainly due to the termination of the growth-accelerating effects of EU transfers, the competitiveness barriers caused by spectacularly rapid wage growth, and the demand and supply barriers to export expansion.

The government will continue to pursue a forced growth-oriented economic policy (envisaging at least 4 per cent annual GDP growth in the convergence programme), which it intends to base on improving competitiveness. However, the realization of this goal is unlikely as the most important measures to strengthen market competition are missing (for example, the abolition of a tendering system with predictable winners and losers, or the modernization of the overcentralized loyalty-driven state). Unfortunately, even the expansion of these damaging features can be experienced. The pro-cyclical fiscal and monetary policy is increasingly corrected or complemented by a hidden, undeclared economic policy with high inflationary risks. As the EU elections have not resulted in the strong (extreme) right shift expected by the Hungarian political leadership, the Hungarian government’s lobbying ability, including future access to EU transfers, seems to be significantly reduced. As a result, the Hungarian GDP growth rate of around 4 per cent expected by the government will not be sustainable in the long run.

The forecast of GKI for 2019

	2016	2017	2018	2019
	fact			September	December	March	June
GDP	102.3	104.1	104.9	103.2	103.2	103.5	104
· Agriculture (1)	113.2	91.9	105.3	100	100	100	100
· Industry (2)	101.0	103.4	103.2	103.5	103	103	103.5
· Construction (3)	89.7	117.0	122.9	105	105	108	117
· Trade (4)	100.8	108.1	107.9	104	104	106	106
· Transport and storage (5)	105.0	103.4	104.6	103	103	103	103
· Information, communications (6)	105.8	111.0	107.0	105	105	105	107
· Financial services (7)	104.0	104.1	102.4	102	102	102	103
· Real estate services (8)	103.2	102.7	104.3	102.5	103	103	104
· Professional, scientific, technical activities (9)	106.5	110.9	106.5	104	104	105	105
· Public administration, education, healthcare (10)	101.5	98.6	100.2	101	101	101	100
· Arts, entertainment (11)	102.7	103.3	105.5	102	102	102	102
· Core growth (2)+(3)+(4)+(5)+(6)+(7)+(8)+(9)	102.0	106.2	106.0	103.7	103.5	104	105.3
GDP domestic demand	101.0	106.8	107.0	104	104	104.5	105.3
· Private consumption	103.4	104.1	104.6	103.5	103.5	104	104.3
· Gross fixed capital formation	89.4	116.8	116.5	105	105	107	113
Foreign trade in goods
· Exports	105.1	104.7	104.7	105	105	105	105
· Imports	103.9	107.7	107.1	106	106	106.3	106.5
Consumer price index (preceding year = 100)	100.4	102.4	102.8	103.5	103.5	103.2	103.7
Balance of current and capital account
· EUR billion	7.0	4.9	3	6.5	6.5	4.5	2
· In per cent of GDP	6.1	4.0	2.3	5	4.8	3.2	1.4
Unemployment rate (annual average)	5.1	4.2	3.7	3.5	3.6	3.5	3.5
General government balance in per cent of GDP (ESA)	-1.6	-2.2	-2.2	-2	-2	-2	-1.8