In the European Commission’s Spring 2015 Economic Forecast, Hungary’s economic outlook has been revised upward. Still, the effects of measures presented in the Convergence Programme, such as next year’s tax reductions that are expected to stimulate consumption, could not be factored into the report. Besides that, the Commission’s macro-economic and fiscal projections are basically in line with the expectations of the Government of Hungary.

According to the Spring Forecast of 2015, Hungarian GDP is set to rise by 2.8 percent in 2015 and gradually decrease to 2.2 percent in 2016. This prognosis is more upbeat than that of the Winter Forecast, estimating GDP growth of 2.4 percent and 1.9 percent, respectively. The Commission’s conservative estimates are in both years one-tenth of a percent below the macro-economic figures of the Convergence Programme. Regarding 2015, the basic difference originates from the Government’s slightly stronger investment growth figure stemming from the acceleration of the drawing of EU funds. In 2016, the discrepancy is caused only by the fact that – due to the earlier completion of the report – the Commission did not factor in the consumption-boosting effect of a lower personal income tax rate.

In the opinion of the Commission, the much-better-than-expected performance of the Hungarian economy has been the consequence mainly of investments, fuelled by the speeding up of the drawing of EU funds and the MNB’s Funding for Growth Scheme. The report also adds that on the production side every economic sector has contributed to expansion. Export trends continue to be favourable and the country’s current account balance may further improve. Hungary’s economic growth will exceed the EU average over the entire forecast horizon.

Positive labour market processes are also seen to remain in place, with the unemployment rate falling below 7 percent in 2015 and to 6 percent in 2016. The Commission’s inflation estimate for 2015 is in line with that of the Government (0.0 percent), while for 2016 there is a difference of 1 percentage point. That discrepancy may have been caused by the fact that the Commission could not take into account the effect of lower VAT on pork as well as the reduction of certain duties.

The European Commission acknowledges the Government’s efforts on cutting taxes and the level of general government debt, which is seen to drop to 73.5 percent of GDP by 2016, even lower than projected by the Convergence Programme.

The report also stresses that risks concerning the macro-economic path are rather positive. SME-oriented lending schemes and the implementation of the announced policy commitments towards the financial sector will bolster lending activity and investment. On the other hand, strong growth and investment activity will lead to improved confidence.

(Ministry for National Economy)