Q4 GDP growth, the new growth target and monetary policy

HUNGARY - In Brief 15 Feb 2019 by Istvan Racz

---

1. GDP growth was reported at 4.8% yoy on sda basis for Q4 2018, down from a revised 5.1% yoy in Q3. The full-year growth rate was recorded at a preliminary 4.9% in sda terms (4.8% according to unadjusted data). In fact, GDP grew by close to 5% yoy throughout the whole of 2018.2. On February 10, PM Orbán said that the government aims at GDP growth of the EU average growth rate plus 2 percentage points in each of the next few years. Should the EU Commission's fresh forecast be realised, for 2019 this would require 3.5% GDP growth for Hungary.3. The way we read these two separate pieces of news together is that the MNB appears to have the political flexibility to start monetary tightening NOW, despite our belief that under governor Matolcsy, the MNB has a rather strong political mandate to support the government's growth objectives. Of course, MNB action is likely to be cautious, gradual and measured, but at least no one in the government says that growth should continue to run at its current speed.