Economic growth was strong in 2015 but is projected to slow in 2016 as public investment declines and the fiscal stance becomes less accommodative. Activity should rebound in 2017 on the back of renewed public investment. Private demand should remain fairly robust over the coming two years. Economic growth and the public works scheme are projected to boost employment. Inflation will pick up and could reach the central bank’s inflation target of 3% at the end of the projection period as economic slack disappears.
Fiscal policy is shifting to a broadly neutral stance. However, additional consolidation is needed to reduce public debt more quickly and expand the room to manoeuvre in the event of an adverse economic shock. Monetary policy is expected to be tightened in 2017 to contain inflation pressures through a combination of higher policy rates and a reconsideration of the expansion of the central bank’s balance sheet through the “Funding for Growth” schemes. Accelerating the slow income convergence process requires pro-competitive reforms in product markets to bolster private investment and productivity growth.
Carbone dioxide emissions have dropped considerably over the past decades, and Hungary is now a seller of tradable emission permits. This partly reflects the increase in the share of renewable energy sources to 8% of the total; the share is planned to reach 20% by 2030. The cost of achieving the target would be reduced by removing the many tax exemptions for intensive energy users.