Hungarian economist: this is why the forint will continue to weaken

Viktor Zsiday, a well-known Hungarian economist, wrote on his website about why he thinks the Hungarian forint will continue to weaken. He believes if the government maintains utility price cuts, even worse could come than the weak forint. Below you can read a summary of his article.

According to zsiday.hu, the Hungarian economy needs modification, but those will not be communicated as government restrictions. In a sarcastic post, he says that the government will introduce a “special economic operation” like Russia carries out a special military operation, according to what Putin says.

Zsiday also says that regarding the new measures, people should focus on 2023, not 2022.

The government calculated a 4 pc budget deficit for 2023. However, that is not viable. First, the loss of the National Bank of Hungary will be more than 1 pc of the GDP in 2022. Secondly, the increase of the Hungarian economy will probably be slower because of the war. Therefore, the budget deficit will be around 5.5-6.5 pc. Additionally, nobody can calculate the loss generated by the utility price cuts. But there will be significant losses if the energy prices remain high, he wrote. 

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If energy prices remain high, the budget deficit might reach 8-9-10 pc of the Hungarian GDP, an unsustainable figure. Furthermore, the all-time jolly joker, the financial resources of the EU, are very uncertain.

If there is no compromise with the EU (= no money comes from Brussels), and the utility price cuts remain with the high energy prices, the government will need a “special economic operation” worth 5 pc of the GDP.

If there is a compromise, the government would need to find “only” HUF 500-1,500 billion, which is also an incredible amount of money. Before, the government introduced special taxes draining the bank, energy, and communications sectors. However, currently, these are in the hands of pro-government businesspersons.

If there is no compromise, there will be a significant austerity package, just like in 1994 when the budget deficit was 8.4 pc.

Zsiday says that the government will not be able to distribute that burden properly, so everybody will feel the consequences.

Without a compromise, the Hungarian economy may get on an Argentinian/Turkish economic downhill. That means a continuously weakening forint, high inflation, and price caps that do more harm than good. 

Source: zsiday.hu