We have a bad news! Hungary’s recession is unavoidable

Hungary’s economy was not in a good shape even before the pandemic and the war. However, these are not the real causes of Hungary’s current recession but only accelerating factors. Even before these events, the country’s economic model was unsustainable in the long run. This trajectory might lead Hungary back into the past in economic terms.

It is now unavoidable for Hungary to face a significant economic slowdown in the next two consecutive quarters. Even in the best-case scenario, Hungary will only have slightly more growth than just complete stagnation — writes Mariann Trippon, the leading analyst at CIB, on G7.hu. The corporate sector is struggling with low demand, while the increased operation costs shocked the industries. The global economy is slowing and this time, we cannot expect China to be the final customer to generate demand.

There is no room for action, neither by monetary or fiscal politics. All the budgets have to be reworked over and over again as the crisis worsens. The Hungarian Central Bank’s base rate has been raised to 13 percent. The raised base rate reduces the growth of debt, but this also takes a toll on the Central Bank’s resources.

Even before the war and the pandemic, inflation was rising as the golden age passed by. The recession must have ended at some point, but with the two crises following one another the downhill ride will be steep — reports Napi.hu. The problem is that most of Hungary’s successes were artificially generated, which cannot be continued.

• Read also: Hungary’s second-largest power plant halts operations amid the energy crisis

There is nothing to boost the GDP

If the GDP stagnates, both businesses and households will suffer. The energy prices will most likely remain high. With the increased cost of agricultural production combined with the droughts, it is not plausible that food prices will drop. Due to the increased cost of households, consumption will decrease. The construction sector is also slowing down because of the increased material prices. This means that state-financed projects will reduce in numbers too. Overall, the future does not look bright and it will most likely get even worse than it is now.

But as Winston Churchill famously said:

“Never let a good crisis go to waste.”

Every crisis is a chance to change directions and the goal now is to choose a more sustainable trajectory.

Source: Napi.hu, G7.hu