Hungary - Economic forecast summary (June 2016)


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Growth is projected to moderate in 2016 due to a temporary contraction in public investment as a new cycle of EU structural funds commences, but should pick up again in 2017. Private demand should remain solid and employment should continue to expand, supported in part by the still large public work schemes. The disappearance of economic slack and the one-off effects of lower energy prices will push up inflation during 2017.

The fiscal stance will be broadly neutral in 2016, but is set to become expansionary in 2017 even though economic slack will largely be eliminated. The public work schemes (which cost ½ per cent of GDP) should be gradually scaled down as employment opportunities in the private labour market expand. With rising inflation, the central bank may need to consider moving towards a more neutral policy stance by end-2017.

Productivity growth has been low since the global financial crisis. Broad structural reforms are needed to secure more competitive firms and an adequately skilled labour force. In particular, red tape should be cut and regulatory impact assessments should be better used to improve transparency, stability and formulation of regulatory policies. The effectiveness of labour market training programmes should be enhanced together with measures to improve vocational training, work-family balance and lifelong learning. A comprehensive SME strategy could increase economic dynamism and inclusiveness.

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