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European Commission raises GDP growth forecast for Hungary

European Commission raises GDP growth forecast for Hungary

BUDAPEST: Hungaryʼs real GDP growth is expected to be 3.5% this year, the European Commission said in its 2017 winter economic forecast released on Monday, in an upward revision from the 2.6% growth predicted in its earlier fall forecast in November, Hungarian news agency MTI reported today.

The EC puts 2016 GDP growth at 1.9%, compared to the 2.1% growth it predicted in the fall, but said economic growth could reach 3.2% in 2018, which is higher than the previously expected 2.8%.

The predictions compare to an updated government forecast, published in December, which put 2016 GDP growth at 2.1% and forecast it to pick up to 4.1% this year, and to 4.3% in 2018.

Real GDP growth temporarily declined in 2016, mainly due to a 12.7% drop in investment in the first three quarters of the year which was associated with the changeover to a new planning period for EU investment funding, the EC forecast said.

The governmentʼs agreement with the private sector on wage rises and a cut in payroll taxes is expected to have a positive effect on growth as higher wages boost consumption and lower taxes boost investment. At the same time, the rise in the minimum wage may also drive firms to substitute labor with capital.