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

(END) Dow Jones Newswires

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

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