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March 23rd, 2017

IMF Says Hungarian Economy Showing More Positive Momentum

International Monetary Fund (IMF) staff recognized Hungary’s high economic increase over the past several years and stated the medium-term perspectives for the Hungary “remains favourable but is subject to risks” in a concluding report, following regular Article IV consultations, according to Hungarian news agency MTI.

The IMF staff visited Hungary between February 23 and March 8, meeting Minister for National Economy Mihaly Varga, National Bank of Hungary Governor Gyorgy Matolcsy, other officials and representative of the private sector and think tanks.

Hungarian economy performing well

The IMF staff said Hungary’s GDP growth is projected to come to about 3% this year, accelerated by a recovery in absorption of EU funding and strong consumption as wage increases foster disposable income. Employment is projected to grow further and the economy may start to operate at full capacity in the course of 2017, they added. The staff welcomed the reduction in the tax wedge and in some distortive sectoral taxes. They also encouraged the authorities to continue reducing such taxes as well as streamlining multiple VAT rates. The staff said the National Bank of Hungary’s decision to continue to ease monetary policy was appropriate and welcomed the decision of the central bank to wind up its Funding for Growth Scheme by the end of March 2017.

On average, banks are liquid and well capitalized: in 2016, bank profitability improved significantly. The visiting staff welcomed the MNB’s intention to continue to enhance supervisory practices and guidelines, including in view of the large write-back of provisions and rapid increase in real estate prices.

Potential risks

They put a weakening in the Eurozone, a further slowdown in global trade and increased financing costs as monetary policy normalizes among the risks to the outlook of the country. Domestically, rising demand and an expanded home subsidy scheme could inflate asset prices, the staff added. These risks would be reduced by the improved current account and international investment position, as well as by “the enhanced market sentiment towards Hungary”, the IMF staff said.

Recommended fiscal measures to bring down debt

Hungary’s economic strength provides an opportunity to advance growth-friendly fiscal consolidation, the staff said. “Such consolidation would focus on enhancing the quality of expenditure and composition of revenue, while gradually improving the cyclically-adjusted fiscal balance,” they added. They also said such a strategy would “enable monetary policy to stay accommodative for a longer time”. Monetary policy can “remain accommodative” in the near-term in view of a slow pickup in new lending, careful pre-emptive measures to improve lending practices and increased global risks, the staff remarked. They also added that the central bank should be ready to remove some stimulus as underlying inflationary pressure picks up.

Source:

https://www.mnb.hu/en/pressroom/press-releases/press-releases-2017/hungary-imf-staff-concluding-statement-of-the-2017-article-iv-mission

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