The View 7th edition

Source: KSH, Oxford Economics

Real Earning Growth and Inflation Rate in Hungary

11

10 12 14 % year

0 2 4 6 8

real earning growth inflation rate

Forecast

2006 2008 2010 2012 2014 2016 2018 2020 -8 -6 -4 -2

Forecast

In the absence of inflationary pressure, the monetary council has kept the benchmark interest rate at 0.9% as of January 2019, although recent communication cautiously suggested an upcoming rate hike. Based on market sentiment, the HUF seems undervalued based on economic fundamentals and is likely to strengthen or stabilize against the EUR at a rate around 320 or below. As the global economic outlook is turning increasingly bearish and the likelihood of an exaggerated tightening of global interest rates is fading, the MNB faces less pressure to end its lax monetary policy intended to support further economic growth and credit expansion. Hence, there is still significant room for debt-driven real estate activity, as Hungarian households are among the least indebted in the EU, with an aggregate mortgage-to-GDP ratio below 8%. In summary, there are no obvious warning signs suggesting a sudden slowdown from the outstanding GDP growth seen in Hungary in 2018. Although there are various headwinds which can restrain economic activity, foreign analysts have gradually revised their forecasts upwards over the last 12months, as themain drivers of economic growth remain intact: continued wage increases fuel consumption while EU funds boost investment, all supported by a relatively lax monetary environment.