The growth rate of the Hungarian economy temporarily picked up again in the fourth quarter of 2015, and it exceeded the EU average by more than one percentage point. However, in the CEE region the Slovak, Romanian, Polish, Czech and Bulgarian growth rates were all higher. The slowdown is expected to continue in Hungary: the annual average growth rate will be around 2.3 per cent in 2016, after 2.9 per cent in 2015 and 3.7 per cent in 2014. The EU forecasts that out of the 11 countries in the CEE region only the Croatian, Bulgarian and Slovenian growth rates will be lower than the Hungarian one.

Following a 0.3 percentage points decrease in November 2015, the OECD reduced its growth forecast for the world economy in 2016 by another 0.3 percentage points in mid-February, to 3 per cent. The international organization therefore calls for an increase in the implementation of structural reforms and public investments; above all in the euro area. According to the OECD the euro area economy will slow down in 2016, growing barely by 1.4 per cent, i.e., 0.3 percentage points lower than the forecast of the European Commission published two weeks earlier. This is clearly a negative sign for Hungarian exports and the economy in general. In addition, the international political risks remain significant, and the probability of the emergence of a two-speed Europe is increasing. This would be harmful for Hungary’s perspectives, especially in the longer term.

However, the main reason for the slowdown of the Hungarian economy in 2016 will be the about 5 per cent decrease in investments rather than the deceleration in exports. The drop in investments is the result of declining EU transfers and the low propensity to invest by the business sector. At the same time, consumption growth may accelerate somewhat due to slightly increasing wage growth (around 2.5-3 per cent) and the only about 0.8 per cent rise in prices, which is lower than the effects of the 1 percentage point reduction in the personal income tax rate. The government is trying to stimulate growth by the accelerated use of EU transfers, boosting housing construction and the Growth Supporting Program (GSP) of the National Bank of Hungary. However, no substantive effects can be expected until next year.

The cash-flow deficit of the general government in 2015 exceeded its anticipated target by more than HUF300bn despite rising tax revenues as a consequence of a delay in EU transfers. However, the government deficit relative to GDP monitored by the EU was better than expected (around 2 per cent).

Nevertheless, the ever increasing unpaid bills of public institutions and the dangerously deteriorating level of the services they provide (for example, in healthcare and education) dim the importance of these results. According to the calculations of the National Bank of Hungary, the gross government debt relative to GDP dropped to 75.5 per cent at the end of 2015 from 76.2 per cent at the end of 2014.

However, in the meantime fiscal reserves were reduced by about 2.5 per cent of GDP compared to their usual mid-year level, or by 1 percentage point compared to their artificially depressed levels a year before. In other words, without such creative methods, the government debt ratio would have increased. In 2016, however, the “need for these tricks” might be reduced by the inflow of at least a portion of the payments suspended by the EU. GKI forecasts that the general government deficit will be around 2.3 per cent of GDP in 2016 and the government debt ratio may decrease by 1 percentage point.

The external financing capacity in 2015 was extremely high (around 8.5-9 per cent of GDP) as a result of the high surplus in the current account and the record high inflows of EU transfers. Owing to the decline in the inflow of EU transfers, the surplus will decrease in 2016. Capital outflow continued in 2015, and capital exports exceeded capital imports by about EUR0.4bn, and no turnaround can be expected in this regard in 2016.

The Forcast of GKI For 2016

Description                    2013                  2014                  2015           2016 forecast

1.GDP (%)                     101.9                 103.7                 102.9             102.3

2.Industrial production (%)   101.4                 107.6                 107.5             105

3.Investments (%)             107.2                 111.2                 100**              95

4.Construction services (%)   109.6                 114.2                 103.0             100

5.Retail trade turnover (%)   101.9                 104.1                 105.6             103

6.Exports (current prices

in euro, %)                   101.7                 103.9                 107.4             106

7.Imports (current prices 

in euro, %)                   102.0                 104.3                 105.6              105

8.Foreign trade balance 

(EUR billion)                 6.6                    6.3                   8.1                 9

9.Balance of the current 

and capital account           7.6                    6.3                   9.5**              7.5

(EUR billion)

10.Average exchange rate 

of euro (in HUF)              296.9                 308.7                  309.9              320

11.General government 

deficit* (HUF billion)        929.2                 825.7                 1218.6              700

12.Index of average 

gross earnings                103.4                 103.0                  104.2              104.7

13.Consumer price index       101.7                  99.8                   99.9              100.8

14.Consumer price index at 

the end of the period 

(corresponding month of the 

previous year=100)            100.4                  99.3                  100.9              101.6

15.Rate of unemployment 

(at the end of the 

period, %)                    9.1                     7.1                    6.2                 6

* Cash flow basis, without local governments

** GKI estimates

Sources of actual data: CSO, NBH, NGM