The European Commission said that the Hungarian economy will grow faster than previously expected due to rising domestic demand and a rebound in the housing market.
The commission raised its GDP forecast for Hungary this year to 2.5%, from 2.1% in the last report in February and to 2.8% for 2017, from 2.5%.
Real disposable income and household spending should benefit from this year's cut in personal income taxes, the conversion of foreign-currency mortgages into the local currency and government measures to boost the housing market, the Commission added. The housing promotion scheme is to provide an impulse to the housing market and is expected to take full effect in 2017, it said.
While noting that "the open-ended nature of the new housing scheme is a source of budgetary uncertainty," the commission also considerably raised its forecast for a rise in public consumption this year--to 2.4% from 0.2%.
The Hungarian government didn't release its 2017 budget draft before the commission's cut-off date for the spring forecast, but the commission said it expects the budget deficit to remain stable at around 2.0% of GDP in 2017.
The government intends to loosen the budget next year, before the 2018 parliamentary elections, targeting the 2017 budget deficit at 2.4% of GDP.
The commission noted that the government's "considerable budgetary breathing space" expected for this year and next will likely be used up by the substantial tax cuts and expenditure-increasing measures--including the new housing scheme, additional infrastructure investments and spending on state education.
