Hungarian Economy in Trouble, Austerity Measures Expected
The Hungarian economy has entered a prolonged recession in 2023, although inflation has decreased and there has been a very favorable turn in the external balance, according to an analysis by GKI Economic Research Co.
According to GKI's quarterly forecast, the government lacks a new economic strategy, thus continues to not develop a new economic plan to replace the failed re-industrialization program.
According to GKI's quarterly forecast, the government lacks a new economic strategy, thus continues to not develop a new economic plan to replace the failed re-industrialization program.
In practice, the government is returning to a moderated inflationary economic policy after its scope of maneuver has significantly narrowed.
Nevertheless, GKI has not altered its forecast for 2024, expecting growth of between 2 and 2.5%. It has, however, reduced its inflation forecast to 5.5%.
GKI expects consumer spending to grow by 2 percent this year, noting that with an 11 percent increase in earnings and a 5.5 percent rise in inflation, real earnings could increase by more than 5 percent in 2024. The real value of pensions could increase by 0.5 percent, while the real value of entrepreneurial income and social benefits may decline. Consequently, real income could grow by about 3 percent, with purchased consumption expanding slightly less, around 2.5 percent.
The analysis brings bad news in terms of investment, predicting a 2 percent decrease following the government's announcement of scaling back public investments. EU funds will not be of much help either, barely exceeding last year's 2 billion euros, according to GKI. Government ambitions to stimulate the entrepreneurial sector are constrained by the budget's lack of resources, the adverse consequences of forced interest rate cuts, and the risks associated with investment decisions.
The analysis also notes that agriculture saved the Hungarian economy from an even larger decline in 2023, and no significant driving force is evident for 2024. At the end of January, the order backlog in the industry and construction sector was 15-16 percent lower than a year earlier. The industry may see a 4 percent growth in the second half of the year due to an improvement in the business climate, but a further 2 percent decline is expected in construction this year.
With the increase in purchasing power, retail turnover is predicted to grow by 3 percent. Employment is expected to increase by 0.2 percent, but the average annual unemployment rate is also slightly expected to rise to around 4.2 percent.
GKI predicts that austerity policy will intensify after the elections, and this year will see the start of the excessive deficit procedure, albeit without sanctions. To reduce the deficit from 6.5 percent to 4.5 percent, alongside an increase of about 0.5 percentage points in interest payments as a proportion of GDP, a reduction of at least 2.5 percentage points in the primary balance, i.e., austerity measures, will be necessary.
Nevertheless, GKI has not altered its forecast for 2024, expecting growth of between 2 and 2.5%. It has, however, reduced its inflation forecast to 5.5%.
GKI expects consumer spending to grow by 2 percent this year, noting that with an 11 percent increase in earnings and a 5.5 percent rise in inflation, real earnings could increase by more than 5 percent in 2024. The real value of pensions could increase by 0.5 percent, while the real value of entrepreneurial income and social benefits may decline. Consequently, real income could grow by about 3 percent, with purchased consumption expanding slightly less, around 2.5 percent.
The analysis brings bad news in terms of investment, predicting a 2 percent decrease following the government's announcement of scaling back public investments. EU funds will not be of much help either, barely exceeding last year's 2 billion euros, according to GKI. Government ambitions to stimulate the entrepreneurial sector are constrained by the budget's lack of resources, the adverse consequences of forced interest rate cuts, and the risks associated with investment decisions.
The analysis also notes that agriculture saved the Hungarian economy from an even larger decline in 2023, and no significant driving force is evident for 2024. At the end of January, the order backlog in the industry and construction sector was 15-16 percent lower than a year earlier. The industry may see a 4 percent growth in the second half of the year due to an improvement in the business climate, but a further 2 percent decline is expected in construction this year.
With the increase in purchasing power, retail turnover is predicted to grow by 3 percent. Employment is expected to increase by 0.2 percent, but the average annual unemployment rate is also slightly expected to rise to around 4.2 percent.
GKI predicts that austerity policy will intensify after the elections, and this year will see the start of the excessive deficit procedure, albeit without sanctions. To reduce the deficit from 6.5 percent to 4.5 percent, alongside an increase of about 0.5 percentage points in interest payments as a proportion of GDP, a reduction of at least 2.5 percentage points in the primary balance, i.e., austerity measures, will be necessary.
Translation:
Translated by AI
