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Budget reflects looming recession

October 12th, 2011

A conservative economist and a right-wing commentator both suggest that next year’s budget cuts and tax increases are the consequence of unforeseen global economic factors. The draft of next year’s budget anticipates slower growth and contains further cuts in expenditures.

The proposed 2012 budget introduces a total of HUF 1000 billion expenditure cuts and tax increases. According to official forecasts, the Hungarian economy will grow by only 1,5 percent next year. Most independent sources put the figure below 1 per cent.

Hurtling towards the abyss, one must apply the brakes. … We cannot expect the government to keep its campaign promises and hand out hot lunch and dinner for everybody,” economist László Csaba, an earlier critic of the government (see BudaPost September 6) comments on the draft budget of the Orbán government in an interview in Magyar Nemzet.

According to the conservative economist, it is now apparent that a second recession is looming in Europe, Japan and the U.S. The unforeseen negative global economic outlook dashes earlier hopes of faster growth, and compels the Hungarian government to adjust to the grim prospect of an economic slowdown.

In the global economic context, the best the Hungarian government can do is restore its credibility by reducing the deficit and the debt, even if this entails lower growth and the deferment of structural reforms, Csaba contends.

Though Csaba considers the communication of the government weak and some of the measures problematic, he finds cuts in 2012 unavoidable. “Some issues may and should be criticized, but the realignment is necessary for the country to stay afloat.”

The government’s forecast of 1,5 growth seems to be optimistic. Most analysts predict recession for 2012,” notes Csaba Szajlai in Magyar Hírlap. Szajlai lists left and right wing economists, who have recently warned about looming recession.

Szajlai also identifies the global slump as the primary cause of the dim prospects for Hungarian GDP growth. “Hungary’s slowdown fits the international trends. As markets  become sluggish, the Hungarian government is also cutting back its predictions.”

The government will have to do everything it can, nonetheless, in order to strengthen Hungary’s credibility, otherwise investors will turn away from the country. This, however, will not be easy, after the recent introduction of anti-market measures (see BudaPost, September 14), Szajlai suggests.

Unlike Csaba, however, Szajlai believes structural reforms are well under way. “Recession is inescapable, but the budget realignments, including austerity measures are necessary to keep the deficit under control. The structural reform of public spending, including the pensions system and welfare cannot be delayed.”

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