The Ministry for National Economy raised its full-year GDP forecast for 2014 to 3.1 percent, Minister Mihály Varga said on Monday.

The Minister noted that the Government had projected GDP growth of 2.3 percent in the country's updated Convergence Programme in April. He attributed the stable and dynamic growth, supported by a healthy structure, to added value in the production sectors and to a pick-up in domestic demand. "With 3.5 percent growth in Q1 2014, Hungary was among the three most dynamically growing economies, whereas with the 3.9 percent in Q2, it is in first place”, the Minister highlighted.

The growth of the economy brings with it a rise in incomes, which will also increase future household consumption, and in addition will improve the budget balance and have a positive effect on the job market, he added. Data released last week showed Hungary's GDP grew 3.9 percent year-on-year in the second quarter, well over analysts' expectations and the highest rate of growth since the first quarter of 2006.

The faster than expected expansion of market services is probably behind the much higher than forecast second quarter GDP figures, he noted. According to the Minister, the favourable outlook is substantiated by improved order and contract portfolio data, an increase in the number of housing construction permits, higher consumer expectations, the improved domestic PMI (procurement managers) index and an increased willingness to invest. Among the positive risks involved in the 3.1 percent prognosis for this year, the Minister listed stronger than expected foreign demand, which could lead to further growth in industry, the construction industry and exports through a higher order portfolio.

Last year, the Government decided that teacher’s salaries would be increased again this year, which could contribute to an increase in consumption. In addition, household disposable income will increase thanks to foreign exchange debtor rescue measures, which could also lead to a further upswing in consumption, although this will have a more significant effect in 2015, he added. However, the Russia-Ukraine conflict continues to represent a non-assessable negative risk, and an escalation of tensions could damage the whole of European industry, and as a result could hinder Hungarian exports.

According to Minister Varga, this incalculable risk is why the 2.5 percent growth forecast for 2015 has not been revised as yet. “We will examine that issue too once the planning of the budget reaches that phase”, he said.