By Margit Feher

BUDAPEST--Hungary has significantly raised its growth and inflation forecasts for next year and 2018 on the back of massive wage increases planned for the next six years, a study by the economy ministry showed Tuesday.

The ministry also considerably increased its budget deficit forecast for this year on higher-than-expected revenues.

In a 19-page study on economic and budget forecasts until 2020, the ministry raised its gross domestic product growth forecast to 4.1% for next year and 4.3% for 2018, from 3.1% and 3.4% respectively. It increased its forecast for consumer price inflation for next year to 1.6% from 0.9% and to 3.1% from 2.4% for 2018.

A six-year agreement in November between the government and employers' interest groups for hefty wage increases in exchange for payroll and corporate tax cuts from Jan. 1 2017 "sets the Hungarian economy on a course for higher growth," the ministry said in a release.

A pickup in the inflow of European Union support money and a boom in home construction are also set to buoy growth, the ministry said, adding that a change in external conditions could pose a risk to the positive outlook.

In its latest revision, the ministry now said this year's budget deficit will be between 2.1% and 2.3% of GDP as against its downwardly revised projection in November for 1.7% of GDP. It left its budget deficit forecast unchanged for next year and 2018 unchanged at 2.4% of GDP and 1.8% of GDP respectively. All those forecasts safely remain below the EU's 3%-of-GDP tolerance threshold.

The National Bank of Hungary is scheduled to publish its latest GDP growth and inflation forecasts at 1400 GMT.

Write to Margit Feher atmargit.feher@wsj.com

(END) Dow Jones Newswires

December 20, 2016 07:35 ET (12:35 GMT)

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