IMF executive board concludes 2013 article IV consultation and third post-programme monitoring discussions with Hungary

29 March 2013

Hungary's economy has not yet recovered to pre-crisis levels. After a modest recovery in 2011, real GDP is estimated to have contracted by 1.7 per cent in 2012.

The outlook remains challenging. The economy is projected to stagnate in 2013, amid continued weakness in domestic demand and only a mild improvement of external conditions. Labour participation, while somewhat increasing, remains low. In this context, the economy’s growth potential is subdued, thus, amplifying the cost and risks related to the large imbalances in the economy.

In line with global trends, market sentiment toward Hungary improved markedly in recent months. While financing constraints have eased, Hungary’s economy remains vulnerable. Strong non-resident investor appetite for domestically issued government securities and the recent bond placement in international capital markets have helped cover a large part of this year’s foreign exchange financing requirement.

Executive Board Assessment [abridged]

• Executive Directors noted that Hungary has preserved financial stability despite challenging domestic and external environments, and has successfully returned to the international bond market.
• Directors welcomed the authorities’ commitment to fiscal consolidation.
• Directors agreed that improved external financial conditions have supported the recent monetary loosening, but a pause to the easing cycle would now be prudent.
• Directors noted that weak financial intermediation remains an obstacle to economic recovery.
• Directors welcomed recent steps to improve labour participation, but encouraged the authorities to pursue a broader structural reform agenda.

Full article

Hungary: Selected Issues Paper

Hungary: 2013 Article IV Consultation and Third Post Program Monitoring Discussions—Staff Report

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