Hungarian government intentionally unleashed inflation?

The government has apparently sacrificed the fight against inflation in exchange for economic growth. For the year as a whole, the economy has grown quite promisingly. The pre-election vote-getting campaign and the subsidised public loan schemes offered to businesses in the second half of the year could have contributed greatly to this.

Compared to the fourth quarter of 2021, the Hungarian economy was still able to show a minimal growth of 0.4 percent. Due to a strong start to the year, GDP as a whole grew by 4.6 percent compared to 2021.

According to data published by the Hungarian Central Statistical Office (KSH), Hungary was in a technical recession in the second half of 2022. The economy contracted by 0.4 percent in the last quarter compared to the previous quarter. In the third quarter, GDP contracted by 0.7 percent compared to the second quarter.

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Improved economic performance despite the complicating factors

“Hungary has improved its economic performance despite still not having access to the recovery funds it is entitled to,”

communicated the data Finance Minister Varga Mihály referring it to as a success, altough the statement is slightly misleading since the government has launched the Recovery Fund (RRF) programmes. “Despite the prolonged war and the sanctions imposed by Brussels, Hungary has managed to increase its economic performance and even ranks high”in in the EU growth rankings,” he added.

The Minister of Economic Development, Márton Nagy, did not fail to mention the war and the Brussels sanctions. The ministry’s statement said that the “outstanding” performance by EU standards was due to:

• targeted government measures,
• strong wage dynamics,
• years of sustained international confidence,
• high employment,
• sustained high levels of investment,
• and one of the lowest unemployment rates in the EU.

According to HVG, it is not clear what the Minister means by “international confidence”. The government’s targeted measures could have contributed heavily to economic growth in 2022, altough Márton Nagy does not mention the pre-election budget giveaway which contributed to the inflation.

Government measures are typically few or poorly implemented, random and market-distorting, such as price caps. The government’s unpredictable and in many ways damaging economic policies and the dispute with the EU contribute to the high interest rates that have stalled market lending, and in some segments have almost stopped it altogether.