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2019/03/13 / Erste Group Research

HU Macro Outlook: Internal demand could further support GDP, amid global uncertainties

We have revised upwards our forecast for 2019 GDP growth to 3.8% y/y. Household demand could remain strong, mainly supported by continuing wage increases. Investments might slow down, although to a lesser extent than predicted earlier. The contribution of net exports to GDP growth might remain in negative territory, as the ongoing global economic slowdown increases uncertainties surrounding export prospects, while growth of imports could remain relatively high due to the expected strong internal demand. As a result, the surplus on the C/A balance could further decline. Annual average inflation might be 2.8% in 2019, but the annual core inflation rate could stabilize above 3%.

As tax-filtered core inflation reached the 'magic' 3% y/y in January, normalization of monetary policy could definitely start in the near future. The central bank should adjust monetary conditions via its unconventional tools this year. As a result, interbank market rates should slowly increase and the 3M BUBOR rate could approach the level of the policy rate by year-end. The process should be slow and gradual, in our view, and the policy rate could remain flat (0.9%) until 2H20. The forint might be somewhat stronger than earlier predicted and is unlikely to weaken above 325 in the medium term. Following the rating upgrades carried out by S&P and Fitch in February, Hungary might gain at least an outlook upgrade from Moody's in May. The actions of the rating agencies could imply lower risk premium in the medium run.

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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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