In the European Economic Forecast – Winter 2017, published on 13 February 2017, the European Commission has revised its prior estimate of Hungary’s GDP growth for the year 2017 from 2.6 percent to 3.5 percent. This prognosis is already nearer to the figure published in December 2016 by the Ministry for National Economy, predicting growth rates of 4.1 percent for 2017 and 4.3 percent for 2018.
All three major credit rating agencies have by now restored Hungary’s investment grade status. This had mainly been the result of falling external debt levels and lower exposure to forex risks as well as a drop in the stock of short-term external debt. The stock of forex reserves has also substantially exceeded the level of short-term forex debt. As a consequence, Hungary’s vulnerability to external risks continued to diminish in the third quarter of 2016.
According to data compiled by the Hungarian Central Statistical Office (KSH), Hungary’s external trade surplus increased by more than EUR 3bn, or 55.8 percent, between 2010 and 2015. In this period, the value of exports and the annual rate of export growth exceeded those of imports each year. Within exports, turnover concerning each commodity group has risen. In 2015, the two largest commodity groups were machinery and transport equipment as well as manufactured goods.
Thanks to the country’s R&D and manufacturing sector performance, Hungary jumped three places on Bloomberg’s Innovation Index, to No. 27 overall and to No. 13 within the EU. The Global Innovation Index, co-published by Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO) in August 2016, also showed a favourable picture of Hungary’s innovation performance, as the country was ranked as 33rd out of the 128 countries analysed.
According to the latest report of the Hungarian Central Statistical Office (KSH), the unemployment rate has fallen and the number of people in employment has concurrently increased in the period September-November 2016.
The National Bank of Hungary (MNB) issued a statement on 7 January 2017, pointing out that “foreign currency reserves of the notebank totalled EUR 24.4bn at the end of December 2016, an appropriate amount according to forex reserve adequacy standards, the indicators closely followed by international investors.” This fact is being reflected by low yields on government securities, low forint exchange rate volatility and the recent upgrades by all three major credit rating agencies. The European Commission and the International Monetary Fund (IMF) have also found in their latest reports that the amount of forex reserves at the MNB was satisfactory.
According to the latest data published by the Hungarian Central Statistical Office (KSH), wages in real terms have been rising for the 46th consecutive month in Hungary. This steady increase is mainly attributable to tax reductions, low inflation and Government measures (primarily the Job Protection Action). In November 2016, a six-year wage agreement was concluded, a potential driver of further wage growth.
Although the number of arrivals by domestic tourists declined in the first nine months of this year, Hungarians spent more on domestic trips, compared to the same period of the previous year. While the number of low-budget trips was down in the observed period, that of expensive ones increased. This trend reflects a fundamental change in tourism motivation and, consequently, in the type of favoured trips.
According to the Financial Stability Report of the National Bank of Hungary (MNB) published in November 2016, the Hungarian banking sector fulfils liquidity and capital adequacy requirements, and it is well positioned to withstand potential shocks. In 2016, the quality of portfolios improved substantially; banks have significantly reduced the
volume of non-performing loans and thus cleaned up their balance sheets. These factors,
as a whole, may benefit net profitability already in the medium term. The year 2016 saw a major turnaround in SME lending: the falling lending trend has been reversed and lending is expected to grow at an annual rate of 5-10 percent. However, low interest rates, which are jeopardizing profit prospects, and risks to growth in the European Union are clouding the growth outlook of the Hungarian banking sector.
The Hungarian industrial sector has seen massive output growth in recent years – the rate of growth exceeded the average of the European Union, and, concurrently, the sector output-to-GDP ratio has also increased. The Growth Report of the National Bank of Hungary (MNB), published on 9 December 2016, highlights the gradual increase of output within the Hungarian industrial sector, and it also outlines potential future trends.