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2017/12/12 / Erste Group Research

Hungary Macro Outlook - December 2017

After the 3.9% annual GDP growth rate expected for 2017, the economy could expand by 3.5% y/y in 2018, driven mainly by continued improvement in internal demand. Household consumption should further be supported by soaring net real wages and tight labor market conditions, while EU funds inflow may preserve its decisive role in the development of investments. Meanwhile, the inflation rate would remain relatively moderate, as the 3% goal of the central bank is expected to be reached only in 2H18. As both trade and C/A surpluses should be mitigated in the coming years, the external balance situation could protect the forint exchange rate to a lesser extent from possible shocks than in previous years.

Monetary policy is expected to preserve its extra dovish stance in the medium term. The central bank will buy mortgage bonds and offer 5-year and 10-year IRSs from 2018. The ongoing easing process that has been carried out with unconventional measures have led to active management of the whole yield curve by the central bank. As a result, rates and yields should remain depressed and real interest rates could sink to even deeper levels, as inflation rates slowly increase. Any normalization of rates seems unlikely before 2020. In this environment, the possible rating upgrades expected for 2018 are unlikely to have any relevant impact on bond yields.

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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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