OECD slashes growth estimate for Hungary

The Organisation for Economic Co-operation and Development (OECD) projected hardly a month ago that the Hungarian economy will grow by 2.5% year on year in 2016. However, this forecast has been cut sharply to 2016 in the OECD’s latest Economic Outlook published on Wednesday. The move comes on the back of disappointing first-quarter GDP data which showed that Hungary’s economic output rose by merely 0.9% yr/yr in Q1. However, the OECD revised its 2017 growth estimate upwardly to 3.1%.

Portfolio.hu summarizes the main points of the report as follows:

The OECD expects Hungary’s fiscal stance to be broadly neutral in 2016, but says it is set to become expansionary in 2017 even though economic slack will largely be eliminated.

The public work schemes (which cost 0.5% of GDP) should be gradually scaled downas employment opportunities in the private labour market expand, it added.

With rising inflation, the central bank may need to consider moving towards a more neutral policy stance by end-2017.

Productivity growth has been low since the global financial crisis. Broad structural reforms are needed to secure more competitive firms and an adequately skilled labour force. In particular, red tape should be cut and regulatory impact assessments should be better used to improve transparency, stability and formulation of regulatory policies.

The effectiveness of labour market training programmes should be enhancedtogether with measures to improve vocational training, work-family balance and lifelong learning.

A comprehensive SME strategy could increase economic dynamism and inclusiveness.