Massive need for austerity in Hungary?
Even before the elections, the need for a fiscal adjustment in Hungary came up repeatedly. Analysts say the Hungarian government still has room for manoeuvre, but it is questionable how investors will react.
There is more and more risk
Several analyses show that significant austerity measures are needed for the Hungarian budget. Hungarian Prime Minister Viktor Orbán refuted this at an international press conference last week. The deficit target for 2022 will not be met, Finance Minister Mihály Varga admitted as much before the election. There are several reasons for the budget readjustment.
The economy is growing more slowly than excepted.
Economic growth, which the government had expected, has slowed significantly due to the war between Russia and Ukraine. Instead of a 5 per cent growth, it is now estimated to be around 3 per cent, portfolio.hu reports. The average annual inflation rate could be as high as 8-9 per cent.
Hungary has reached more than 70 per cent of its budget deficit target for 2022 in the first three months of the year.
There are also several initiatives that may be too costly to maintain. One of these is the reduction in overheads. The Hungarian government could react in two ways. Either it adjusts the budget, or it can lower the budget deficit in response to the exceptional situation caused by the war. Adjusting the budget either reduces expenditure or increases revenue.
Read also: Minister: Hungary not to send weapons to Ukraine but will not block EU shipments!
What do investors say?
For the Hungarian government, it is important how investors react, i.e. what does the market say? The budget deficit can be a sensitive issue not only for the Hungarian people but also for investors.
The weakening of the forint or EU funds can also be a sensitive point for investors.
The launch of the rule of law procedure is an increasing risk for EU funds. The Fitch rating agency says that “If Hungarian economic policy shifts in a non-investor-friendly direction, it could negatively affect our rating.”
One of the positive aspects recently highlighted by the rating agencies is the strong fiscal discipline in the Hungarian economy. Napi.hu underlines that it will be important to monitor the situation in the energy market, as this sector is more chaotic than ever due to the war, which has quadrupled the world price of natural gas. This is an ongoing extra expense for the government due to the official regulation of residential energy prices.
Source: napi.hu, portfolio.hu
2 Comments
But before 3rd April there was so much talk of economic growth……
This article captures in STRONG tone of Message, giving factual rational examples, that prior to the recent National Elections in Hungary – the prior 18 months in fact to the National Elections – from those with Wisdom,Respect, Experience & Knowledge – what was the true state of the Hungarian economy.
This artice AGAIN confirms – signalling increasing Alarn Bells – the downward TREND – the Economic and Financial outlook short and long term – in Hungary.
“All will be revealed in the fullness of time” – HOPEFULLY, and when it is or what occurs in the immediate and short term future in Hungary – fasten your seatbelts as it is going to be a violent bumpy ride.
What ever steps – the present Government decide to undertake, in an effort to HOLD the economy somewhat to-gether, citizens – through increased TAXES will PAY.
Drastic measures – cutting expediture back “to the bone” – this is just one PROBABILITY , and I believe it will occur, that the present Government, will undertake, in an attempt to HOLD the Economy to-gether.
The Die has TRUELY been cast – the irrevocalable choice of direction has been made by the Fidesz Party – under the Leadership and present Prime Minister of Hungary -Victor Orban – who has “DRIVEN” it – the Economic & Financial picture and position of grave un-certainty – in Hungary – which is NEAR becoming a catacylsmic disaster.
Citizens of Hungary – we will be the LOSERS – and what will occur in Hungary – in the darkened and deeper challenging times that lie ahead of us.