A Hungarian news outlet summed up the top 10 economic challenges the new Orbán administration will have to deal with in the next months, years. Experts agree that the supermajority will ease even the implementation of financial restrictions. Furthermore, the united opposition’s defeat is so severe that they will probably not be able to effectively baulk the government’s plans or offer an alternative. Thus, Viktor Orbán will be able to decide by himself how to cope with the economic and social problems caused by the consequences of the coronavirus epidemic, the rising energy prices, the inflation, and the Russian aggression.
According to 24.hu, Portfólió regards the problems of the Hungarian economy as the hottest topic reelected PM Viktor Orbán must deal with in the coming months, years. The media outlet’s opinion is that the 5th Orbán government has to urgently find a solution to each of these pressing problems.
It is hard to foretell the financial and economic effects of the Russian-Ukrainian war. However, it will probably cause rising inflation rates and slower economic growth. On top of that, the government has to tackle the geopolitical consequences as well. The war might make Central and Eastern Europe a high-risk region in the eyes of foreign investors even though attracting foreign capital is crucial for the development of Hungary.
Even though wages have been rising in Hungary recently, people might feel their salary is worth less, if the inflation rate remains high. That could result in decreasing purchasing power. Furthermore, the government’s fuel and food price cap and utility price cuts can become unsustainable if inflation skyrockets.
The Hungarian economy will certainly not have the same growth rate as it used to prior to the war. That is because raw material prices increased and there are considerable problems in the supply chains. Moreover, it is also hard to tell how the sanctions against Russia will impact the Hungarian economy.
One of the strongest pillars of Orbán’s 2022 election campaign was that Fidesz could protect the people from rising utility prices. They said the leftist-liberal-centrist joint opposition would abolish that measure. As a result, Hungarians would have to pay much higher utility fees as happened in Germany or the Netherlands. However, the difference between the government-supported price and the world market price is growing. In the worst-case scenario, the state budget will have to compensate energy companies with more than 1000 billion HUF (EUR 2.66 bn), which would be an unbearable burden.
The state budget needs to be stabilised. The question here is whether the international environment enables the government to raise the deficit above 5 pc this year. Furthermore, nobody knows yet what consequences the decreasing tax income triggered by the slow economic growth will have.
The 5th Orbán administration’s biggest challenge will be the stabilisation of the Hungarian currency. After the Russian invasion, the forint reached its historic low and for a couple of days, 1 EUR was worth more than 400 HUF. Thankfully, that lasted only days but the exchange level is still around 360-370 HUF/EUR, which is considered to be rather weak.
Receiving EU funds will depend on the Brussels-Orbán duel, such financial aid could reduce the need for foreign capital and investments.
The interest rate cap introduced by the government during the coronavirus epidemic lasts until the 30th of June. Following that date, people with foreign currency loans can find themselves in a very difficult situation. Banks would support a measure like the “forintification” was in 2014 but that would not help all the troubled citizens.
The government has to make a rapid decision on those two as well. If they abolish the fuel price cap, its cost might rise 1.5 times higher than today’s 480 HUF(1.28EUR)/l.
Food prices will probably skyrocket in Hungary if the government abolishes the price cap, and a prolonged war in Ukraine will only worsen that situation.
Finance Minister Mihály Varga acknowledged before the general elections that they would have to reshape the Hungarian state budget.
Source: 24.hu, portfolio.hu