Page 12 - Central & Southeast Outlook 2020

Commission, which left its GDP forecasts for 2020 and 2021 unchanged at 2.8% each.
The government forecasts 4% growth in 2020 and in the following years, well above the market consensus. The bullish prognosis is based on the potential positive impacts of a fiscal stimulus programme to be unveiled in early 2020 to dampen the impact of the downturn on external markets.
The recommended measures are aimed at increasing Hungary's competitiveness as the country lags behind regional peers in this field. The government's primary goal is to have Hungary's economic growth exceed the eurozone's by at least 2pp.
The tight labour market will continue to push up wages and exert upward pressure on prices, while imported inflation will be less of a concern for the central bank in 2020. The market consensus is that the Hungarian central bank (MNB) will keep the base rate unchanged at 0.9% for the fourth straight year.
The MNB recently raised its inflation forecast for 2020 to 3.5% from 3.4% while leaving its forecasts for 2019 and 2021 unchanged at 3.3%. It expects the headline inflation figure to return to the 3% target in the medium term.
Core inflation excluding indirect tax effects, the indicator closely watched by rate-setters, is expected to peak at 3.6% in 2020 from 3.4% in 2019, before falling to around 3% in 2021 and 2022. The forint's weakness this year has been within the comfort zone of the central bank, which sees a weak currency as supporting the government's export-oriented policies. The local currency fell 4% in 2019 and hit an all-time low against the euro at 337 in November. The market consensus is that it will remain in the 325-340 zone for 2020.
1.4 ​Macro - Latvia
2020 is likely going to see further slowdown in Latvia’s economy growth rate, although forecasts vary rather considerably. GDP is expected to grow 2.8% this year, according to Latvia’s budget bill, a slowdown of 0.4pp versus the expected expansion last year and the slowest expansion since 2016. SEB predicts growth of just 2% in 2020, down from 2.4% in 2019. Swedbank’s forecasts are in similar territory, predicting an expansion of 2% in 2020 versus 2.3% in 2019. Perhaps surprisingly, the European Commission forecasts an acceleration to 2.6% this year, up by 0.1pp versus expected growth in 2019.
“In the near term, growth will be determined by how well private consumption can offset foreign trade, which at best will make a neutral contribution to GDP growth,” SEB wrote in its latest outlook in November.
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