GKI Economic Forecast for 2020

The Hungarian economic research institute GKI currently expects the Hungarian economy to decline by 5-7 per cent in 2020 (assuming no second wave of the pandemic this year). 

In March, shortly after the announcement of the coronavirus emergency, GKI forecast two scenarios: one with a 3% and another with a 7% decline in GDP this year. Interestingly, in recent months the Hungarian government and the IMF published forecasts close to GKI’s less pessimistic figure, whereas the EU and the OECD published forecasts with the more pessimistic variant.

Interestingly, in recent months the Hungarian government and the IMF published
forecasts close to GKI’s less pessimistic figure, whereas the EU and the OECD published forecasts with the more pessimistic variant. The 2.2% GDP growth rate in the first quarter was in line with GKI’s expectations. In April, industrial production fell by 37%, exports (in euros) also by 37%, retail sales by 10%, guest nights by 97%, whereas construction dropped by only 2.1% (though its contract portfolio decreased by 15%).

These data foreshadow a marked decline in the second quarter. It is favorable that the lifting of restrictions could already be started in early May. Importantly, after the panic in April, the GKI economic sentiment index improved significantly in both May and June. However, the rise in the index could not eliminate even half of its April fall in May and June. Forecasts for EU member states are typically very pessimistic, which obviously limits the demand for Hungarian exports. The Hungarian government’s economic rescue measures are modest in international comparison. Based on all this, it seems extremely unlikely that Hungarian GDP production would be able to exceed that of last year in the second half of 2020. However, this would be necessary to achieve the “only” 3% decline.

As a result, GKI discarded its less pessimistic scenario and eased the pessimism of its more “pessimistic” scenario somewhat. The current GDP decline of 6% in 2020 assumes a decline of around 15% in the second quarter and around 5% in the second half. The Hungarian economy will probably reach the GDP level of 2019 only in 2022.