Country Economic Forecasts > Hungary

We expect GDP to have bounced by 1% on the quarter in Q2, following the 0.9% contraction in Q1. Looking forward, quarterly growth of around 0.8%-0.9% in H2 should be achieved, as disbursement of EU funds resumes and consumption responds to fiscal policy turning expansionary again. At the same time, a somewhat weaker outlook for Germany, partially due to Brexit-related uncertainty, will dampen growth in the export-driven CEE economies. We forecast that Hungarian GDP will expand by 1.2% in 2016, picking up to 2.5% growth in 2017. Keeping interest rates on hold at the record low of 0.9%, the central bank expanded its unconventional easing programme in July by placing a cap on the three-month deposit facility, its main policy instrument. As a result, despite turbulent financial markets, 10-year bond yields are now at their record-low of 2.8% and are even below those of Poland. Both monetary and fiscal policies are therefore set to remain supportive of growth. However, structural rigidities and regulatory uncertainty will continue to limit the level of long-term growth potential to just below 2%.