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Speculation about Hungary’s economic outlook

October 31st, 2022

Left-wing and liberal analysts blame the government and the National Bank for the high price Hungarians are paying to regain the trust of the markets. A pro-government pundit is optimistic that Hungary can avoid recession – despite the global economic crisis.

Magyar Nemzet’s Csaba Szajlai is optimistic that Hungary will not slip into recession in 2023. The conservative economist acknowledges that the global economic slowdown and inflation have dire implications for Hungary, and also that the proximity of war in Ukraine creates macroeconomic challenges akin to those experienced in 2010. He thinks that this time, however, Hungary will not need IMF help to avert default, and the spending cuts announced by the government will restore investors’ trust, keep the deficit down and help the economy avoid recession. He concludes by suggesting that Hungary has been made more resilient by every crisis it endured since 2010.

Népszava’s Miklós Bonta thinks that efforts by the National Bank to slow down inflation by introducing record high overnight interest rates (see BudaPost October 17) stand in contradiction with the policy tools followed by other governments to help economic growth. The left-wing commentator deplores the fact that in its last report, the National Bank welcomed lower demand and the slowing down of wage growth as good signs.

In Magyar Narancs, Balázs Váradi sees high interest rates as an indication of a loss of credibility on the part of the Hungarian government and the National Bank. The liberal political economist points out that the weakening Forint is a clear indication that investors are pessimistic about Hungary’s economic prospects. Váradi acknowledges that the government pledged to keep the deficit low and halve interest rates within a year, but doubts that this will reassure investors. In the UK, he remarks, the government first had to make a U-turn on its plans to cut taxes and then Prime Minister Truss had to resign in order to restore government credibility and calm the markets, which had been fleeing from the pound. Váradi fears that Hungary can only keep investors interested in the Forint at the high cost of keeping the base interest rate high.

Portfolio finds it surprising that the Prime Minister announced new price interventions. In his regular Friday interview with Kossuth Rádió, Prime Minister Orbán announced that the government would soon broaden the scope of the price caps to cover other food items. He also said that price caps introduced earlier will be prolonged beyond 2022. The independent business news outlet notes that fixed prices may lead to shortages. In addition, producers will raise the price of other products in order to cover their losses or sell lower quality products. Portfolio notes that large retail chains can afford to sell specific products at below the market price, but small shops will have a hard time and some, particularly in small villages, may even be forced to close down.

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