Hungary 2018 GDP forecast revised upwards to 4.3 pct y/y from 2 pct y/y: ERSTE Group

Hungary’s GDP forecast for this year has been revised upwards from 4 percent y/y to 4.3 percent y/y. Strengthening of household demand and investments should further contribute positively to this year's GDP growth, according to the latest report from ERSTE Group Research.

Net exports, however, may contribute negatively, since the pick-up in internal demand generates additional import growth. Inflation exceeded the 3 percent target this summer, as a result of the oil price shock, and it is expected to sustainably reach the 3 percent target of the central bank in 2019. Surpluses on the trade and C/A balances may further decline, but remain substantial.

Monetary policy is expected to preserve its dovish stance; however, the current loose monetary conditions can no longer prevail up to the end of the 5- to 8-quarter horizon of monetary policy, according to the MNB's view. The central bank could continue to buy mortgage bonds and maintain the IRS tenders at least until the year-end, the report added.

The forint depreciated substantially, mainly thanks to changed risk perception on global markets, and is expected to float in the range of 320-330 against the euro. Neither Fitch nor S&P upgraded Hungary this summer, in spite of their positive outlook on ratings.