Inconsistent official forecast for wages and GDP

HUNGARY - In Brief 23 Dec 2016 by Istvan Racz

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As a Christmas gift, the MNB and the Economy Ministry presented the investor community with truly optimistic GDP forecasts over the last two days. The MNB said in its new inflation forecast, which was published yesterday, that they expect GDP growth to accelerate from 2.8% in 2016 to 3.6% in 2017 and 3.7% in 2018. The Ministry was even more optimistic, as State Secretary Agnes Hornung said in an interview, also yesterday, that they expect 4.1% GDP growth in 2017 and 4.3% growth in 2018. Regarding the main factor behind the expected acceleration, robust wage growth in the wake of the recently announced wage and tax measures were mentioned in the first place in both cases.Well, this is a long long story of course, but for the current note, let us just briefly refer to three facts in this regard:1. Of course, GDP growth in 2016 is nowhere near the 2.8% expected by the MNB. On sda basis, it is much closer to 1.5%. But adding the leap year effect (0.4-0.5 points) to get unadjusted GDP figures, plus putting out the inflation report with a forecast on the expected size of likely upward revisions (!!) by the Statistical Office can really help a lot.2. The MNB have also put out a forecast detail, which suggests that they expect accelerating GDP growth on the back of decelerating wage growth. Specifically, they expect 8.5% nominal wage growth in the private sector in 2017, which we largely agree with (we said 8-10% in our latest monthly a few days ago). But this translates into 6.6% real net wage growth for the whole economy, as opposed to 7.6% yoy growth in January-September 2016. Clearly a deceleration.3. Of course, the officially mentioned reasons also include a recovery of c...