Government could weigh fiscal stimulus to combat slowdown in economic growth

Hungary’s government could respond with fiscal stimulus to a possible slowdown in economic growth after the European Union funding cycle ends in 2020, Economy Minister Mihály Varga said in an interview published in Tuesday’s issue of business daily Világgazdaság.

“The main task remains to reduce state debt. But if we see the engine of growth is slowing and needs another boost, the government will have the opportunity to provide fiscal stimulus. We must be flexible,” Varga told the paper.

“We have to return to the normal way of doing things, and companies will be forced to finance their developments from the market. I’m looking forward to this period, because one has to see that the dependence on EU funding, which has become apparent at some companies, moves the economy in the wrong direction,” he added.

Varga said that the 2,000 billion forints (EUR 6.4bn) in EU funding absorbed in Hungary each year generates 6,000-6,500 billion forints of investments.

“Thus the scale of extra investments flowing into the Hungarian economy is such that there isn’t sufficient capacity,” he added.

He noted that the matter of “smoothing out” state investments had been brought up at a meeting of construction industry insiders in November.

“Hungary’s construction industry, which generates 3.5 percent of GDP at present, is incapable of ramping up output to the 6-7 percent level seen in the early aughts. That kind of increase can’t be supported by labour, but by science and technology,” Varga said.

Source: MTI