Solid private consumption in Hungary to maintain positive growth momentum in H2 2016

Hungary’s economic growth accelerated in the second quarter of this year after posting a weak growth in the previous quarter. According to a flash estimate, the second quarter real GDP growth accelerated to 1.1 percent in sequential terms. The positive momentum is expected to be sustained in the second half of this year, owing to the relatively strong private consumption, as private sector deleveraging has come to an end and absorption of EU funds is rising, stated Danske Bank in a research note.

“Due to the positive Q2 GDP number and smaller contraction in Q1, we revise up our full-year 2016 real GDP forecast to 2.0 percent while sticking to our projected 3.8 percent growth rate in 2017”, added Danske Bank.

Meanwhile, Hungary’s investment grade was upgraded in September by S&P, citing rebounding fiscal, external and growth expectations, while keeping its stable outlook. After dovish monetary stances were adopted throughout the emerging markets, the Hungarian central bank maintained its base rate stable at 0.9 percent during its September meeting, while deflation raises worries regarding additional unconventional easing.

Deflation remained in August, although core inflation remained pretty stable, unchanged at 1.2 percent year-on-year in August. Therefore, the National Bank of Hungary is expected to remain on hold until early 2017, when it might consider hiking rates, according to Danske Bank.