Hungary’s inflation to be close to government’s 2.8% projection

Hungary’s annual average inflation will be close to the government’s 2.8per cent projection this year, Finance Minister Mihaly Varga said on Monday in an interview.

A jump in headline inflation to 4.7 per cent in January and a plunge in the forint to record lows past 340 to the euro earlier this month prompted central bank Deputy Governor Marton Nagy to pledge the bank would use all available tools if needed to combat high inflation.

The bank will hold a rate meeting on Tuesday where it is expected to keep rates on hold.

When asked about the forint’s current levels of around 337-338 to the euro, Varga said the government had no exchange rate target but it was important to have stability and predictability.

“It is of secondary importance where this (stable) forint level is, as this is determined by the market,” he added.

Varga also said the government would launch a new green bond for institutional investors, with a maturity of 3 to 5 years and a retirement bond for retail investors this year with terms that could be competitive with the retail bond MAP Plus that has become hugely popular.

Earlier this month the government cut its 2020 economic growth forecast to 3.5 per cent - the slowest pace in four years - as the impact of the coronavirus, Brexit and high levels of global debt damage its growth prospects.

The government had previously forecast 4 per cent growth.

“We do not need to make changes to this year’s budget,” Varga said, adding that trends in the global economy were so volatile that possibly even the original 4 per cent growth projection could be achieved.

Hungaryʼs GDP rose 4.5 per cent year-on-year in the fourth quarter of 2019, state news wire MTI reported, citing the first reading of data by the Central Statistical Office (KSH).

Growth slowed from 5 per cent in Q3. GDP growth was exceptionally strong in the first quarter, reaching 5.3 per cent before slowing to 4.9 per cent in Q2.

Full-year GDP growth reached 4.9 per cent in 2019. In 2018 full-year growth was 5.1 per cent, up from a 4.3 per cent growth rate in 2017.

Adjusted for seasonal and calendar year effects, Q4 GDP growth was 4.6 per cent.

KSH said market-based services, as well as the industrial and construction sectors, contributed the most to growth in Q4.

The seasonally and calendar year adjusted annual growth rate was 4.9 per cent in 2019, down from 5.1 per cent in 2018 but up from 4.5 per cent in 2017.

Analysts polled by MTI said the Q4 GDP figure came as a positive surprise, adding that they expected the moderate slowdown to continue this year.

Péter Virovácz of ING Bank noted that both industrial output and construction-sector output showed a significant decline according to monthly data, adding that added value probably grew faster than output itself thanks to improved efficiency and the service sector is likely to have made a bigger-than-expected positive contribution. ING Bankʼs analysts forecast 3.8 per cent average GDP growth in 2020.

Dávid Németh of K&H Bank predicted 3.7 per cent economic growth this year on the more subdued performance of the global economy, the end of the current EU budget cycle and the effect of the coronavirus outbreak.

Gergely Suppan of Takarékbank said he projected GDP growth of 4 per cent this year and 3.6 per cent in 2021.

 “The Hungarian economy is among the fastest-growing economies in the European Union, its performance was among the top three in 2019, just as earlier years”, and the latest GDP data “exceeded the expectations of the government and the Finance Ministry”, Mihály Varga said, commenting the fresh economic growth data.

Considering external downside risks such as challenges faced by the German automotive industry, the effects of the coronavirus outbreak on tourism and supply chains, problems between the United States and China, and the United States and Europe, as well as the significant global indebtedness, the Finance Ministry corrected its earlier 2020 GDP growth forecast of 4 per cent to 3.5 per cent, Varga said.

Growth slowed from 5.0 per cent in Q3. GDP growth was exceptionally strong in the first quarter, reaching 5.3 per cent before slowing to 4.9 per cent in Q2. Full-year GDP growth reached 4.9 per cent in 2019. In 2018, full-year growth was 5.1 per cent, up from a 4.3 per cent growth rate in 2017. Adjusted for seasonal and calendar year effects, Q4 GDP growth was 4.6 per cent.

KSH said market-based services, as well as the industrial and construction sectors contributed the most to growth in Q4.

Agencies