Economy 2 May 2024, 4:10pm

Hungarian economy will recover gradually - MBH Bank

Portfolio

MBH Bank has lowered its GDP growth forecast for 2024 to 2.7% from 3.5%. Although the weak performance in the fourth quarter of 2023 has dampened the expectations of the bank's experts, they still forecast a gradual recovery, including the start of this year. In addition to high real wage growth expected in 2024, an improving external market environment will also lend momentum to the economy, and GDP growth could reach 3.7% next year.

Consumption, industrial production, trade and hospitality are expected to pick up from the second quarter, and the accelerating growth and the central bank's inflationary considerations could result in the forint firming to 382.5 against the euro by the end of the year, according to MBH Bank experts. According to Zoltán Árokszállási, head of the bank's team of analysts, the labour market will remain tight, close to full employment.

Interest rate cuts are likely to continue for some time, but the developments in the United States (mainly the pricing out of interest rate cuts) and deteriorating risk perceptions are continuously narrowing the Hungarian central bank's room for manoeuvre, so the 6.5-7.0% base rate that will be reached by mid-year will be further reduced to 6.25% by the end of the year, said Márta Balog-Béki, senior capital markets analyst at the bank. The consensus forecast of analysts polled by Portfolio before the April policy meeting came to 6.50% for the end-year base rate.

Inflation may rise slightly by the end of the year, with political frictions with the EU, the weakening of the forint so far, geopolitical tensions and volatility in international sentiment all prompting the MNB to be cautious.

This year's budget deficit target of 4.5% of GDP looks achievable with the announced postponement of HUF 675 billion worth of investment. Even so, there is still no room for stimulus in next year's budget, and we are likely to see a further delay in investment, as the government hints at in its convergence programme, said Árokszállási.

Falling inflation and faster-than-expected wage growth at the start of the year will boost real earnings significantly this year. The MBH expects gross wage growth of 11.8% this year, which, based on their inflation forecast of 4.1%, would raise purchasing power of wages by 7.5-8%.