Hungarian economy is projected to grow by a real 0.5% y/y in 2013 after contracting 1.7% y/y in 2012, the European Bank for Reconstruction and Development (EBRD) said in the latest edition of its Regional Economic Prospects report published on Nov 11. In its previous projection from May 2013, EBRD forecast a 0.8% y/y GDP contraction for 2013. The significant upward revision came as Hungary saw a surprising and welcome cyclical recovery, with a second quarter of growth in Q2 2013. This improvement was on account of public investments in infrastructure, though also by some improvement in domestic consumption as real wage growth resumed.

Hungary's GDP growth is expected to accelerate to 1.2% y/y in 2014, the EBRD said also revising up its previous estimate for a 0.9% y/y increases. However, the bank warned that trend growth rate could be undermined in mid-term by the continuing lending contraction and growing uncertainty for investors in sectors such as utilities. The EBRD believes that the central bank’s lending for growth scheme is unlikely to be effective unless more investor-friendly policies support loan demand.

We note that, the European Commission projected earlier in November a 0.7% y/y growth for Hungary in 2013, revising up its previous estimate of a 0.2% y/y rise forecast in May. Next year's forecast was also improved to 1.8% from 1.4% and the GDP is seen further accelerating to 2.1% in 2015.

Hungary’s government sees the GDP growth at 0.7% y/y in 2013 and at 2% y/y in 2014.