The updated Convergence Programme covering the period 2013-2016 projects faster growth and a lower deficit for the upcoming years.

The Programme, which the Government sent to the European Commission in Brussels on Monday and which is available at the website of the Ministry for National Economy as of Tuesday, lists five growth factors expected to underpin the economy’s revival this year. The Programme was presented at a press conference by Minister for National Economy Mihály Varga.

One engine of growth will originate from the correction of extraordinary effects which caused contraction in 2012. Among these factors, the Programme singles out that in 2013, providing average weather conditions prevail, the agricultural sector may significantly contribute to growth after a weak performance last year. As the Minister said, this component may add 0.4 percentage points to economic growth.

Higher external demand may result in net export growth even if domestic demand as a whole remains stagnant, and that may be another positive component. Thirdly, fiscal processes are also expected to facilitate growth, while the Government adheres to its deficit target of 2.7 percent of GDP. The Programme also signals that maintaining the deficit target will dent growth to a lesser extent than formerly anticipated.

The Programme lists among growth drivers the lending schemes announced by the National Bank of Hungary (MNB) and Eximbank. In the next 12 months, Eximbank intends to lend HUF 120bn as new loans to finance the exports of Hungarian enterprises, while the first pillar of the MNB’s Lending for Growth Scheme provides low-interest funding of HUF 250bn for enterprises.

As the last among these pro-growth components, the Programme identifies the flow of significantly higher EU funding, which is expected to boost investment activity.

As a consequence of the negative knock-on effects of the 2012 economic slump, growth data for the first quarter of 2013 will likely remain negative, but – gathering steam gradually -- growth may reach some 2 percent by the end of the year.

The Programme estimates that after the economy expands by 0.7 percent of GDP this year, it will grow by 1.9 percent in 2014, by 2.3 percent in 2015 and by 2.5 percent in 2016.

The Convergence Programme, on the other hand, also predicts a slight widening of the output gap in 2013 (from -1.7 percent to -3.7 percent), as growth will be below its long-term potential. In the coming years until 2016, however, this output gap will gradually close. The Hungarian economy is anticipated to reach an output level in line with its long-term potential in 2017.
As the majority of Government measures impact the labour market, labour will be the largest single contributor to achieving potential growth. The Programme also predicts increasing influence by capital (investments) and competitiveness in its outlook.

The fiscal deficit outlook revised in the Convergence Programme envisages deficit figures which in the years of budding growth do not hamper the recovery with a more restrictive fiscal policy. In the entire time-scale of the Programme, the structural deficit of the government budget will be below the medium-term fiscal target (a deficit of 1.7 percent of GDP), and thus fiscal policy will have slightly more room to manoeuvre. The fiscal deficit-to-GDP ratio of 2.7 percent for this year and next will continue to decline to 2.2 percent and 1.3 percent in 2015 and 2016, respectively.

Parallel to lower deficits, the Programme also prognosticates a decrease of gross government debt: the government debt-to-GDP ratio will decrease from 79.1 percent at the end of last year to 78.1 percent this year and then to 76.1 percent in 2015, and 73.4 percent in 2016.

For the full text of the convergence programme please see the document attached.

(Ministry for National Economy, MTI)