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After contracting through 2012, the economy is expected to start expanding at a subdued pace in the course of 2013. Partly due to a rising participation rate, unemployment is projected to increase until mid-2014. As deleveraging, high uncertainty and poor business confidence will continue to weigh on private domestic demand, growth will hinge on exports and the current account surplus should widen further. Though moderated by economic slack, core inflation is projected to remain somewhat above 3% over the projection horizon as inflation expectations remain entrenched at a high level.

While the authorities have made substantial progress in reducing the budget deficit, they should rebalance consolidation towards expenditure restraint and more growth-friendly taxation, notably by phasing out distortive taxes on banks and non-tradable sectors. Prudent monetary policy is key to stabilising expectations and avoiding a weakening of the forint, which could threaten public and private sector balance sheets. Restoring financial intermediation, which is essential for investment and growth, requires avoiding ever-greening of bad loans through adequate provisioning and better targeting of debt restructuring programmes.

Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.

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Link to Excel of selected projections (flash file) and dotStat