picture of György Matolcsy

“The epidemic struck suddenly, and the economy and life came to a sudden halt. However, the recovery is similarly fast, not in all things and not everywhere, but compared to crises over the last 100 years, this recovery has now been the fastest,” the head of the Hungarian National Bank (MNB) wrote in his latest analysis published on Magyar Nemzet.

On the one hand, György Matolcsy pointed out that the Hungarian economy had restored its 2019 pre-coronavirus GDP level by the middle of 2021, making it one of the 10 best-performing economies in the EU.

At the same time, the central bank governor says the opposite case is true in terms of rebalancing compared to restoring growth. The crisis, and after that the crisis management and now the recovery, is being accompanied by a rapid and significant deterioration of these balances. Not one single equilibrium indicator is deteriorating, but all of them at once.

Matolcsy also elaborated on how Hungary’s budget deficit could be around 8% of GDP in 2020-21, and by 2022 the country could catch up to Italy and Romania, the two countries with the highest deficits in the EU.

Public debt is hovering around 80% of GDP, and next year’s high deficit target does not forebode a perceptible reduction in this rate, argues the MNB Governor. Along with these processes will be higher inflation, which is mainly due to global economic developments but is undoubtedly also affected by high domestic budget deficits as well as higher income outflows from improvements in productivity and competitiveness.

Governor Matolcsy wrote that since the outbreak of the coronavirus-induced crisis, the Hungarian economy situation has been deteriorating, both in absolute terms and in terms of its relative position. Although this has occurred in all countries affected by the crisis, in most cases there has been a gradual improvement in many of their indicators since that time.

However, the situation in Hungary has been gradually deteriorating for more than a year, and its deterioration in terms of the country’s financial vulnerability is already perceptible in its external financial assessment.

György Matolcsy believes continuing all government measures that improve living standards, but that certain public investment projects which add to the deficit but do not improve competitiveness must be abandoned or postponed.

[Magyar Hang]

By Steven N.

Steven is the editor-in-chief of Hungarian Politics. He has been following the political scene in Hungary and the Central European region more or less since 1994.