The OECD has upgraded its 2018 growth projection for Hungary from the earlier 4.4 per cent to 4.6 per cent, but also for next year its projection concerning the growth of the Hungarian economy is 0.3 per cent more optimistic than earlier.

In its autumn publication Economic Outlook, the organisation reckons with stable state finances, a further fall in the sovereign debt and an even lower unemployment rate in Hungary in the coming years.

Most recently the European Commission raised its projection regarding the expansion of the Hungarian economy to 4.3 per cent, but several other international organisations have also adjusted their forecasts upwards recently.

According to the OECD’s projection, Hungary’s unemployment rate will fall to 3.6 per cent, a historic low, this year, which may then decrease even further, while the number of those in employment will increase continuously. The Paris-based organisation highlights that in the first eight months of 2018 wages in Hungary increased by 12 per cent which was due to the six-year wage agreement between the government and employers and public sector wage increases. They point out that, in consequence of the system of tax allowances for families and targeted VAT reductions, Hungarian families are left with more money to spend which contributes to increased consumption. Based on the inflationary trends to date, mainly due to the increase in fuel prices which affects most areas of production – in agreement with the central bank’s forecast –, the OECD expects an inflation rate at around 3 per cent for this year. According to the draft, in the next few years the deficit of the budget may remain below the 3 per cent threshold under the relevant Maastricht criterion, while the percentage of the sovereign debt may decrease further.

The OECD believes that housing construction and corporate activity will continue to boost investment. The former is favoured by the government’s first home programme, while the latter by the reduction of the corporation tax and the appropriate utilisation of EU funds. At the same time, they also observed that in the interest of improving the productivity of small and medium-sized enterprises, it is necessary to improve the innovation and regulatory environments, and to continuously develop human capital which is in harmony with the government’s plans for the enhancement of competitiveness. According to the OECD, tensions on the international money markets and a hard Brexit could present external risks for the Hungarian economy.

((Ministry of Finance))