In the European Economic Forecast – Winter 2017, the European Commission significantly revised its former growth estimate of 2.6 percent upward, to 3.5 percent of GDO, for Hungary. The Commission predicts the rate of GDP growth to be 3.2 percent in 2018. This modification also signals that the 6-year wage agreement concluded at the end of last year may boost economic expansion.

Thus, the Commission’s valuations have edged closer to predictions of the Macro-Economic and Budget Outlook published by the Ministry for National Economy in December 2016. The Ministry prognosticates GDP growth of 4.1 percent in 2017 and 4.3 percent in 2018.

Thanks to substantial tax reductions and wage hikes, wages in real terms are expected to rise by 40 percent over the next six years and lead to the improvement of the standard of living. The wage deal helps narrow the gap with wages in Western Europe, and the lowering of payroll taxes is seen to bring employer taxes closer to those at our regional peers. Low tax rates obviously result in competitive advantages and make Hungary more attractive in the case of corporate investment projects, but they also help increase economic transparency. The agreement is expected to underpin positive macro-economic processes in coming years and place the Hungarian economy on an ascending growth path.

The report underlines the fact that Hungary’s growth rates of 3. 5 percent in 2017 and 3.2 percent in 2018 will be well above the respective averages of the EU28 or the Euro-zone, and this will help Hungary narrow the economic gap with the EU’s developed countries.

The Commission concludes that growth will be achieved while fiscal stability can also be maintained: the deficit of the general government budget is estimated at 2.4 percent of GDP this year and 2.5 percent next year, safely below the 3 percent threshold targeted by the EU. The Commission points out that stronger economic growth and a low budget deficit may lead to a lower government debt-to-GDP ratio of 71.2 percent at the end of 2018.

(Ministry for National Economy)