Hungary's economy is projected to grow by 2.9% y/y in 2014, the central bank said in a new forecast, revising up its previous estimate of 2.1% y/y, projected in March. The Hungarian economy will benefit from improvement in global business activity, strong utilisation of EU funds, accommodative monetary conditions and the Funding for Growth Scheme, the bank said. It kept unchanged at 2.5% y/y its growth projection for 2015.

The central bank expects economic output to continue in a balanced structure with domestic demand becoming an increasingly important contributor. Exports would continue to be driven by automotive manufacturing. At the same time, the upswing in domestic demand could boost imports, which might reduce the growth contribution of net exports in the coming quarters, the bank said.

External demand is projected to increase by 1.9% y/y in 2014, speeding up from 1% y/y in 2013. Exports growth is projected to accelerate to 6.2% y/y in 2014 from 5.3% y/y in 2013. Imports will grow by 6.7% y/y this year, speeding up from 5.3% y/y in 2013 as well.

The annual growth in gross fixed capital formation is expected to accelerate from 5.8% y/y in 2013 to 8.4% y/y this year. This will be mainly driven by public investments implemented from EU funds as well as corporate investment.

Despite the low inflation rate and improving labour market conditions, household consumption may only pick up by 2% y/y due to the reduction of debts accumulated prior to the crisis, tight lending conditions and precautionary considerations.

The bank expects gross average earnings to increase by 2.8% y/y in 2014 and by 3.7% y/y in 2015. Employment is projected to grow by 3.5% y/y and 0.8% y/y in 2014 and 2015 driven by the private sector.