Hungary projection note OECD Economic Outlook November 2023

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Hungary Economic activity is projected to rise by 2.4% in 2024 and 2.7% in 2025, after a decline of 0.6% in 2023. Lower inflation, mainly driven by energy and food prices, is expected to support a gradual pick-up in investment and private consumption. The main risks around the outlook are related to the pace of the decline in core inflation and the outcome of negotiations with the EU regarding the delivery of EU funds. Reducing the budget deficit as planned will be key to rebuilding fiscal space in view of upcoming spending needs related to ageing and the green transition. Restructuring energy support by moving from price caps to targeted cash transfers to support vulnerable households would increase incentives for energy savings, reduce the exposure of public finances to fluctuations in global energy prices, and improve energy security. Productivity growth could be bolstered by strengthening competition in the transport, professional services and telecommunication sectors. This and a wider diffusion of digital skills would accelerate the digitalisation of firms. The economy has emerged from recession After four consecutive quarters of GDP decline, economic growth restarted in the third quarter of 2023. While business confidence remains low, especially in the construction and retail sectors, consumer confidence is slowly improving and the labour market is holding up well, with only a marginal increase in unemployment from 3.5 to 3.9% since the start of the recession. Inflation declined from over 25% in January 2023 to 9.9% in October, mainly driven by declining energy and food prices. Energy price caps delayed the impact of the 2022 energy price shock on inflation but resulted in a significant fiscal cost. These price caps were either limited or removed later on, thus pushing up energy prices until the second half of 2023. Food inflation has been declining rapidly this year, but services inflation is stickier. Inflation expectations are consistent with a return to the central bank’s tolerance band of 2-4% by 2025.

Hungary

Source: OECD national accounts database; OECD Consumer Prices database; and OECD calculations. StatLink 2 https://stat.link/g7csz4

OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 2: PRELIMINARY VERSION © OECD 2023


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