Hungary's GDP growth likely to slow down to 3.5% in 2015

Hungary's first quarter GDP growth of 3.3% yoy was dragged by fixed investment (-3.5% yoy, largely due to a high base) and public consumption. Private consumption and net exports maintained solid momentum, as the economy is enjoying several tailwinds (eg, household consumption rising on debt reduction, FX loan conversion, upcoming PIT and VAT cuts, ECB QE). IP growth has outperformed regional peers since the beginning of 2015 due to steady expansion in auto production capacity, to the benefit of exports.

According to Bank of America's estimation, 2015 GDP is likely to fall to 3.5% from 3.9% as 1Q results were below expectation, but the economy is expected to grow at 2.9% in 2016. Moreover, the bank estimates the current account surplus to be at 4-4.5% of GDP. 
The NBH signaled more easing at its 23 June meeting, but the end of the easing cycle is near. 

"Upside inflation surprises recently led to revise up our inflation forecast to 0.4% in 2015 and 2.5% in 2016, from -0.1% and 2%. In our baseline, we see another 15bp cut to 1.35%, but note that the NBH may go slightly further", adds Bank of America.

The NBH's policies to promote more domestic ownership of local bonds creates cushion for local bonds during the easing cycle.