Hungary central bank trims key inflation forecasts for 2019 and 2020

Banking & Finance
| The European | 1st October 2019
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The National Bank of Hungary sees tax-adjusted core inflation, its preferred measure of lasting price trends, at 3.4% this year and next, below its June forecasts, the NBH said in its quarterly inflation report published on Thursday.

The NBH left interest rates unchanged on Tuesday, with global monetary easing, a deteriorating euro zone outlook and lower inflation outweighing considerations about a sliding forint, which hit a record-low versus the euro this week.

At 0754 GMT, the forint traded at 333.7 per euro, off Tuesday’s all-time lows at the 336 mark.

The central bank said Hungary’s current account had swung into a deficit worth 0.5% of gross domestic product in 2018, following a revision to official statistics and would remain in a deficit until at least 2021 based on its current assumptions.

In its previous inflation report published in June, the bank put the current account at a surplus of 0.5% in 2018, dropping to zero this year before a rebound to a 0.7% surplus by 2021.

Central bank Managing Director Barnabas Virag it was due to a regular methodological revision carried out by the Central Statistics Office.

“The emphasis remains on Hungary’s financing ability, which continues to be solidly positive,” he said.

“The change in the current account balance is largely due to investments. The investment rate is very high at over 28% and these capacities should start bearing fruit sooner or later.”

The bank warned however that economic growth was expected to slow over the coming quarters and weakening activity in the European Union, Hungary’s main trading partner, would have an increasingly strong impact.

It sees economic growth slowing to 3.3% next year from 4.5% in 2019. The bank also said the worsening external environment may lead to a re-planning of the timing of export-oriented investments in Hungary.

“Effective use of EU funds will gradually decline after this year, resulting in a decline in public investment in 2020-2021,” the bank said. “Hungary’s export growth may become more muted, reflecting the deterioration in the global and the outlook for European demand.”

It said investments would grow by just 2.4% next year and 4% in 2021 after expanding by about 16% over the 2018-2019 period.

Source: Reuters

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