BUDAPEST: The Hungary’s Central Bank projects 2016 GDP growth of 2.5%, upping its forecast from 2.1% in the previous report. The direction of the changes came as no surprise after consumer prices fell 0.2% last year and were down by an annual 1.2% in January-February. The 2015 budget was calculated based on a 1.8% annual average inflation for the year. 2014 GDP growth reached 3.6%, better than projected earlier, and fresh forecasts project this year’s GDP growth in excess of the 2.5% projection in the 2015 central budget act.
Viewing all aspects, Hungary’s National Bank raised its forecast for 2015 economic output growth to 3.2%, the main figures of its fresh quarterly Inflation Report showed. The GDP forecast is sharply up from the 2.3% growth forecast in the previous report published in December. The bank also cut sharply its forecast for inflation in 2015, now expecting consumer prices to stagnate this year rather than increasing on average by 0.9% as projected in December. This might be one of the reasons why MNB’s rate setters cut the base rate by 15 basis points to 1.95% at a regular meeting on Tuesday.
MNB now forecasts 2016 inflation to average 2.6% annually, closing up to the bank’s 3% midterm target more gradually than thought earlier, but within the just designated percentage point tolerance band. 2016 annual average inflation was forecast at 2.9% in December.
Economy Minister Mihály Varga said in February his ministry would decide whether to change the official projection based on first-quarter data. Inflation is likely to be significantly below the target this year, and is expected to rise to levels around 3%, the now more flexible inflation target, only towards the end of the forecast period. At the same time, economic growth may continue to be robust, driven as before by domestic demand. According to Varga, Hungary’s financing capacity will remain high, and external debt is decreasing. The Hungarian risk premium has fallen in the past quarter and sentiment has been generally favourable in financial markets.
