Hungarian economy likely to slow in 2016, domestic consumption to remain strong

The Hungarian economy is likely to have grown closer to 3% y/y in Q4 2015 as the use of EU funds money was speeded up, according to KBC Market Research. The Hungarian government boosted the spending and therefore domestic consumption and industrial production might be stronger. Hence the economy is likely to have expanded around 2.7% y/y for the entire 2015, added KBC Market Research.

However, the outlook for this year is not much favorable. Investments in the country have begun declining, while the EU funds money use might fall considerably in 2016 because of the new budgetary period. With the help of a new government program, the Hungarian government attempts to stimulate construction. The new program aims at new homes for households. Domestic consumption is expected to remain solid due to growing wage mass.

If the global growth does not decelerate significantly and if agriculture gives an average harvest, the Hungarian economy might expand around 2.3% y/y this year, noted KBC Market Research. Meanwhile, the monetary council is expected to continue with easing cycle at least until June. Hungary’s inflation decelerated to -0.2% in March from 0.3% y/y in February. This might trigger further easing of monetary policy.

“We expect 15bp cut on 26th April, which might be followed with two more steps in May and June down to 0.75% from the current level of 1.2%”, said KBC Market Research.