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2022/06/13 / Erste Group Research

Economy to slow amid fiscal consolidation, higher rates and global uncertainties

The domestic economy performed better than expected in 1Q22, resulting in 8.2% y/y growth. So far, despite the worsening external environment, the performance in 2Q seems to have remained favorable. The conjuncture has been based on strong domestic demand. Looking ahead, growth dynamics are to moderate in 2H22. However, the FY figure could still be strong. We expect annual GDP growth of 5.5% in 2022. Regarding next year, the performance is set to converge to potential growth, as a result of possible negative effects of additional sector taxes on investments, slowing consumption and the less supportive base effect.

Inflation remains on an increasing path. The 12-month headline CPI rate entered double-digit territory in May and might peak in autumn. Short-term prospects will primarily depend on the government decisions on price caps (six base foods and fuel), as they will likely be prolonged after June. The yearly average rate could still exceed 10% and should just slowly decline in 2023. So far, the MNB has maintained its dual interest rate system - the effective oneweek depo rate stands at 6.75%, while the base rate was at 5.90% at the end of May. The two rates might be merged in late 3Q, and tightening steps will probably continue at least until the year end.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusHungary
Currency in focusHungarian Forint
Sector in focus-


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