Statement by the Staff Representative on Hungary Executive Board Meeting, May 10, 2017

Hungary has succeeded in achieving several years of high economic growth as well as reduction of debt and other vulnerabilities. However, external and public debt remain high. Growth decelerated in 2016 partly due to slower absorption of EU funds and related investment. The output gap is closing, unemployment has declined to about 41/2 percent--partly reflecting a still appreciable public employment scheme, and reflation is gaining traction.

Abstract

Hungary has succeeded in achieving several years of high economic growth as well as reduction of debt and other vulnerabilities. However, external and public debt remain high. Growth decelerated in 2016 partly due to slower absorption of EU funds and related investment. The output gap is closing, unemployment has declined to about 41/2 percent--partly reflecting a still appreciable public employment scheme, and reflation is gaining traction.

This statement provides information that has become available since the issuance of the staff report on April 21, 2017. The thrust of the staff appraisal remains unchanged.

  1. The preliminary 2016 general government deficit has been revised slightly from 1.7 percent of GDP to 1.8 percent of GDP. Unemployment has continued to decline and is now reported at 4.5 percent for end-March 2017. The Ministry for National Economy is projecting it to decline further to 3.6 percent in 2018, and is projecting real GDP growth at 4.1 percent for 2017 and 4.3 percent for 2018.

  2. The authorities have submitted the draft 2018 budget to parliament. The draft budget envisages a general government deficit of 2.4 percent of GDP, which is slightly narrower than staff’s projection of 2.5 percent of GDP.