This year both the internal and the external components of growth had a stimulating economic effect. The considerably improving prospects of Hungary’s most important export market, the euro-zone, have a very positive impact on foreign trade. Parallel to this Central and Eastern European foreign markets are also expected to recover. Investments will very likely be on the rise primarily because of the optimistic growth expectations of the corporate sphere.
GDP growth in 2000 will be around 4,0-4,6 percent. The slight real currency appreciation caused by the slowing rate of devaluation and the effects of fiscal policy on demand will both contribute to a lower inflation rate without having an adverse effect on external balance. At this rate of growth – should budgetary expenditures follow the plans published by the government -, the current account balance may acquire a deficit of 2,5 billion USD, or 4,4-4,9 percent of the GDP. Faster economic growth – driven by increasing investments – will necessarily lead to the increasing indebtedness of the private sector. If maintaining optimum medium-term growth is the goal, the ensuing deterioration of the current account balance can only be avoided by the reduction of structural budget deficits.
Economic forecasts about the state of the Hungarian economy and its likely performance next year suggest a slight fallback in growth. Researchers expect an average 3,9 percent GDP growth with an average 10 percent inflation rate for 1999, and an average 4,2 percent GDP growth and an 8 percent inflation rate for the coming year. Government forecasts are more optimistic than that, however contain more internal contradictions. During the already traditionally uncertain last two months of the year unanticipated negative investments could cause unfavourable results and the Y2K computer switch could also increase uncertainties. In spite of all that key figures are not likely to change significantly. –
