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Hungary’s GDP grew by 7.1% in 2021

picture of economic chart

Hungary’s gross domestic product (GDP) grew by 7.1% in 2021 compared to the previous year, the Central Statistical Office (KSH) said on Tuesday. Raw data, unadjusted for seasonal and calendar effects, show an even larger increase of 7.2%.

In the last quarter of the year, growth was 2.1% on a quarterly basis. KSH attributes most of this growth to the service sector.

Compared to 2019, the last year before the pandemic, Hungary’s economic growth increased by 2.1%, official statistics show.

[Telex]

Hungarian public debt at historic high

picture of Hungarian money

At the end of September, the gross consolidated debt of the Hungarian state was 42.106 trillion Ft. (US $130.1 billion), according to data published by the Magyar Nemzeti Bank (MNB) on the last day of 2021, making it the highest it has ever been in the country’s history.

Hungary’s public debt increased by 3.688 trillion Ft. ($11.4 billion) since the beginning of last year, and is 20.116 trillion Ft. ($62.1 billion) more than in December 2010. The debt-to-GDP ratio was 80.3% at the end of September, rising to 2011 levels, although it peaked at 83.6% when the Orbán government came to power.

However, public debt is likely to have eased somewhat in the last quarter of 2020, as the government embarked on debt-cutting operations to attempt to bring the debt-to-GDP ratio below 80.1% in December.

The Hungarian economic growth is expected to be over 6% in 2021, but public debt is expected to decrease only minimally, statistically-speaking. According to a recent report released by the Ministry of Finance, December’s debt ratio will be 79.9%, which could decrease to 77% of GDP in the election year of 2022.

The Finance Ministry expects the debt trajectory to decline rapidly in the coming years as a result of economic growth and fiscal adjustments. In its three-year forecast, the ministry expects the level of public debt to fall to 69.3% of GDP by the end of 2025, which would correspond to its 2018 level.

Public debt has skyrocketed in recent years all over the world, as governments have had to provide families with subsidies to replace income and businesses with lost revenue in 2020 and 2021 due to widespread closures from to the coronavirus pandemic.

However, Hungary has been quite stingy compared to other countries with providing benefits to the unemployed and socially disadvantaged, as the government has largely focused on boosting investment instead. In this respect, the Hungarian government has spent thousands of billions of forints on subsidies to state-owned and pro-government companies, leading to a growth in the Hungarian public debt by several trillion forints.

At the current pace, a 60% debt-to-GDP ratio can be realistically achieved by 2030, unless Hungarian and world economies are hit with another shock like the coronavirus or 2008 economic crisis.

The 60% indicator is one of the criteria for adopting the Euro as a national currency, but the Fidesz-written and adopted Fundamental Law states that debt should be 50% of gross domestic product. However, the economic ramifications of the coronavirus pandemic has made this goal, like the introduction of the Euro, even harder to achieve.

[Népszava]

Political opposition announces its economic policy plans for the election

picture of press conference

Politicians in the united opposition held a press conference on Tuesday to announce their economic policy plans.

If the opposition manages to defeat Fidesz and win the elections, they would reduce minimum wage taxes, create a fairer public procurement law, introduce a strict system of declaring conflicts of interest and the declaration of assets, and demand a joint minimum wage across the European Union.

Márton Ilyés from Momentum said the personal tax system needs to be made more just. For example, the tax on the monthly minimum wage would have to be reduced, as Hungary has the highest minimum wage tax burden in the EU. He also talked about creating local development plans to lift up economically-lagging regions in the county.

Democratic Coalition MP László Varju stated that there will only be a real change in wages if they can manage to create a unified wage across the European Union. As he stated, Hungary needs a minimum wage that does not depend on the Hungarian government.

Another speaker, Dániel Z. Kárpát from Jobbik, pointed out that 74% of Hungarians live on the edge of EU-defined poverty, and that only Bulgarians are poorer than Hungarians. Hungary needs a wage program for nationally-strategic sectors such as police, firefighters, and health care to stop workers in these professions from leaving the country to earn more abroad.

Bence Tordai from Dialogue discussed public procurement legislation, stating that investment projects funded by the government and EU are overpriced, draining the country of money. The opposition would eliminate the system of so-called national economic “priority” investment projects, as taking development projects away from social and professional scrutiny makes it one of Hungary’s most corrupt laws. Tordai also said Hungary should join the Europeaan Public Prosecutor’s Office.

Answering a journalist’s question, Bence Tordai said that a realistic timetable for joining the Eurozone needs to be set, but that it would certainly go beyond a single Parliamentary term.

Another journalist asked whether united opposition prime ministerial candidate Péter Márki-Zay would eliminate the utility price cut program championed by Fidesz. Former television reporter András Simon, now an advisor for the opposition’s campaign, stated that Márki-Zay has never advocated ending the price cuts, but he has said that smart and sustainable utility price cuts such as providing housing insulation are needed instead.

[Magyar Hang][Photo: Jobbik Magyarországért Mozgalom / Facebook]

Inflation to be around 5% this year and next, says Matolcsy

picture of György Matolcsy

The Hungarian National Bank (MNB) expects inflation to be around 5% this year and next, with a forecasted range of 4.7-5.1% for 2022, said György Matolcsy to business site Portfolio.

Matolcsy said that while inflation ended up being close to their desired rate of 3% in 2020, this will not be true for 2021, and likely not for 2022 either.

According to the governor of Hungary’s central bank, the rise in inflation is a global phenomenon caused by the coronavirus and the narrow recovery period, but it is a high price to pay for the world economy to get on its feet again.

Inflation is everyone’s public enemy, especially central banks

-said the MNB Governor.

The latest inflation report by the MNB is expected on December 14.

[24.hu]

More than a quarter of Hungarian families in worse shape now than last year

picture of Hungarian coin

Only 12% of Hungarians would survive without income for a year, while 67% of the population has been able to set aside money more or less regularly over the past year, reports state news agency MTI, quoting research by Provident Pénzügyi Zrt.

In an international survey commissioned by International Personal Finance (IPF), Ipsos MORI found that 45% of Hungarian respondents felt that their personal financial situation had not changed, with 24% saying it had improved and 27% saying it had gotten worse.

Last year, only 19% of those surveyed said that their financial situation had improved, compared to 24% this year. Over the past year, 27% of Hungarians surveyed reported not being able to put money away at the end of the month.

Of the Eastern European countries surveyed, Romania had the worst rate, with 34% saying they were unable to save anything. The Czechs were the best, with only 18% of those unable to set aside extra funds at the end of the month. One in ten Hungarians in the survey stated that they had been able to save a large or considerable amount on a monthly basis.

The survey showed that every tenth Hungarian regularly sets aside a fixed amount at the end of a month. One in four respondents said they were able to save a variable amount of money on a monthly basis, while one in three respondents had been able to save some amount of money, but not on a regular basis over the past 12 months.

In the past year, 32% of Hungarians borrowed or took out a personal loan in some way, including 15% of those who received a loan from a bank or financial institution, and the rest borrowed from family and friends.

[Magyar Hang][Photo: Péter Revisnyei, “27,” / Flickr, (CC BY-SA 2.0)]

Hungarian economy expected to grow 6.8% this year

picture of Mihály Varga

The Hungarian economy was one of the fastest to recover in Europe, surpassing pre-epidemic levels by the middle of the year, said Minister of Finance Mihály Varga (pictured) at the annual hearing of the Economic Affairs Committee on Monday. GDP growth is expected to be at 6.8% this year and over 5% next year, stated the minister.

Varga emphasized that the budget had remained stable during the crisis and the recovery. Unlike 2008, he said, the IMF did not have to be called in to bail Hungary out, even though the current crisis was more severe worldwide than it had been more than ten years ago.

While the world economy contracted by 1.7% in 2008-2009, the rate of recession was 3.6% in 2020-2021

-added Finance Minister Mihály Varga.

[24.hu]

Inflation in Hungary is third-highest in EU

picture of Hungarian money

The average annual inflation in the countries of the European Union was 4.4% in October, and within that the average price increase in the countries of the Eurozone was 4.1%. A month earlier, the EU average was 3.4%, up from 0.3% a year earlier, according to data released by Eurostat today.

Malta had the lowest annual inflation in October (1.4%), followed by Portugal (1.8%) and Finland and Greece (2.8%). Inflation was highest in Lithuania (8.2%), followed by Estonia (6.8%) and then Hungary (6.6%).

The G7 writes that although Hungarian household consumers do not directly perceive an increase in energy prices due to the government’s utility reduction scheme, industrial consumers are not protected by this, and so soaring costs are reflected in consumer prices.

According to the latest data from the Central Statistical Office, prices rose in Hungary by 6.5% in October. Since then, the government has capped the price of regular fuel per liter at 480 Ft. (US $1.50).

[444]

Forint falls after MNB raises key interest rate

picture of Ferenc Deák

The Hungarian National Bank (MNB) raised the base interest rate 0.3%, from 1.8% to 2.1%, to take effect on Wednesday, writes 24.hu.

Most analysts expected some monetary tightening, but there were also some who saw a need for an increase of up to 1 percentage point due to higher inflation. The average inflation rate jumped to 6.5% in October, with even higher rates likely in November-December.

With inflation so high and interest rates low, it is no surprise that the Hungarian forint has hovered at near-historical lows recently, says the business news site.

Money markets were subsequently disappointed in MNB’s 0.3% increase, as analysts had planned on a somewhat higher hike in the base interest rate.

Following the Central Bank’s decision on Tuesday, the forint quickly fell from 364 to 366.8 against the Euro, close to its historical low of 369.8 Ft. Against the dollar, the Hungarian currency was pegged at 322.5 Ft.

[24.hu]

Matolcsy sees warning signs for Hungarian economy

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]

Central bank may spike interest rates to protect forint

picture of MNB logo

Inflation looks so worrisome to the Hungarian National Bank (MNB) that the central bank may have to raise interest rates by as much as 1 percentage point on Tuesday, according to analysts who spoke with Népszava.

The central bank’s base rate is currently 1.8%, but is expected to exceed 2.5% on Wednesday, and may even soon approach 3%.

No monetary tightening of this extent has been carried out since the financial crisis of 2008, when Hungary was close to bankruptcy. At that time, the central bank raised the rate 3 percentage points, from 8.5% to 11.5%.

András Vértes of GKI Economic Research Zrt. said that current problems are caused by inflation due to the coronavirus crisis. In such a situation, the MNB really cannot do anything else but raise rates, he said.

Financial market analysts also expect a strong interest rate hike if for no other reason than to stabilize the forint exchange rate. On Friday, the Hungarian forint hit an eight-month low against the dollar and the Euro.

[Népszava]

Finance Minister announces 750 billion forint tax cut

picture of Mihály Varga

The Economic Cabinet has decided on a 750 billion Ft. (US $2.34 billion) tax cut, with taxes on labor to decrease in 2022, announced Finance Minister Mihály Varga on Facebook.

As the minister posted:

  • the social contribution tax rate will be cut by 2.5% to 15%
  • the vocational education contribution of 1.5% will be abolished, and a social contribution tax will not have to be paid on trainee salaries for certain types of vocational training programs
  • the small business tax rate will be cut to 10%
  • benefits to small and medium-sized businesses will be extended in regards to the local business tax, which will be set at a maximum tax rate of 1% next year.

Some other significant tax changes to take effect next year will affect sole proprietors favorably, offer a personal income tax exemption for persons under age 25, and benefit public trust funds. There will also be tax changes affecting higher education grants, the utility reduction scheme, and cryptocurrency trading.

Finance Minister Varga recently told the German-Hungarian Chamber of Industry and Commerce that the government’s massive spending on domestic priorities was unconnected to elections expected to take place in the spring.

[Index][Photo: Mihály Varga / Facebook]

Finance Minister: recent gov’t spending has nothing to do with the elections

picture of Mihály Varga

According to Finance Minister Mihály Varga, the large sums of money being spent by the government lately have nothing to do with the Parliamentary elections next year.

Speaking at the German-Hungarian Chamber of Industry and Commerce, the minister said that the Hungarian government had learned from the previous economic crisis as well as the faser recovery now being seen in the US that spending helps jumpstart the economy.

Mihály Varga mentioned two elements in this regard. One is the spectacular difference between the recovery of the American and European economies, explained by the fact that the US has pursued a much stronger policy for stimulating demand. The minister said that it was worth keeping in mind that there was a slow recovery following the crisis of 2008-2009, when fiscal authority measures were introduced.

Therefore, he believes that recent government spending is not about the elections at all.

In any case, these stimulus packages are significant, with the government expected to make transfers over 1 trillion Ft. (US $3.1 billion), most of it before the parliamentary elections in April. The tax refund for families with children alone is costing the state over 600 billion Ft. (US $1.9 billion)

However, the Hungarian central bank, led by György Matolcsy, has recently disagreed with the government on this matter. Matolcsy claims that the economy has already restarted, and that further stimulus money will cause more harm than good.

[HVG]

Government puts price cap on regular 95 and diesel gasoline

picture of gas pumps

The price for regular diesel fuel and 95 gasoline will be capped at 480 Ft. (US $1.50) per liter starting on Nov. 15, announced Gergely Gulyás at a government information session yesterday. The price cap will be in place for three months.

Fuel prices have risen sharply over the past year, and the head of the Prime Minister’s Office noted that Hungary’s neighbor Croatia has also set a maximum price for fuel, equivalent to 550 forints per liter. In this context, Gulyás claimed that Hungary’s gas prices are among the sixth or seventh cheapest in the European Union.

But the minister did not mention that Hungary’s average price for diesel, which accounts for two-thirds of fuel-related revenue, is already higher than the 27 EU member state average.

Gergely Gulyás justified the price cap by saying that the price of petrol also affects other products, and by claiming that the new government measure will solve 98% of society’s problems.

The new measures only apply to regular 95 and diesel gas, but high-quality premium fuel makes up around 10% of diesel purchases, and about 20% of gas sold in Hungary. Népszava reports that premium fuel is around 40-50 forints per liter more expensive than the regular version, although the newspaper has also documented premium prices at 600 forints per liter.

Gulyás also revealed that the new measure will not affect the fuel prices apart from those at the pump, such as wholesale contract purchases.

Prime Minister Viktor Orbán revealed for the first time at the end of October that, following the Croatian example, the government was considering putting a cap on fuel prices.

[Népszava]

Warning signs appear for the Hungarian economy

picture of workers in car factory

Economic growth in Hungary is moving in an increasingly unsustainable direction, writes Népszava, with industrial production declining and foreign trade deficits and inflation rising.

Hungarian industrial production decreased by 2.3% in September compared to the previous year and by 0.3% compared to August, the Central Statistical Office (KSH) announced. This means that production levels were broadly similar to those before the epidemic in September 2019.

KSH recorded an increase in the majority of the manufacturing sub-sectors, including the production of food, beverages and tobacco products. However, Hungarian vehicle production has declined significantly, mainly due to factory shutdowns due to the global semiconductor shortage. Manufacturing of computer, electronic and optical products, where shortages of microchips are also a problem, has also decreased.

A pleasant surprise came from retail, however: retail sales in September were 5.8% higher than a year ago. In the first nine months, Hungarians spent an average of 2.8% more in stores than a year earlier.

According to Mariann Trippon at CIB Bank, the short-term outlook for industrial production is not rosy, and global supply-side tensions will remain with us for the next few quarters. However, household consumption was strong this year, and solid growth in this area is expected in 2022 as well, the newspaper writes.

[Népszava]

EBRD says Hungary expected to recover quickly from pandemic-induced economic downturn

picture of EBRD headquarters

Economies in Europe’s emerging region, including Hungary, are likely to recover from the coronavirus outbreak at a much faster pace than previously expected, according to a recent forecast by the European Bank for Reconstruction and Development (EBRD) in London on Thursday.

In the Central and Eastern European region, the EBRD gives the strongest growth forecasts for the Estonian and Hungarian economies. The EBRD expects the growth rate of the Hungarian economy to approach 8% this year.

However, in a 42-page autumn forecast, the financial institution also foresees high prices for natural gas, crude oil and other commodities, which put a strain on the trade balance of the region’s energy-importing economies and drive up inflation.

After last year’s 5% decline in the Hungarian economy, the bank expects 7.7% growth this year, which is 2.2 percentage points faster than in its previous June forecast. The EBRD expects Hungary’s GDP to grow by 4.8% next year, which is unchanged from their previous forecast.

In the Central European and Baltic EU region as a whole, the bank expects an average GDP growth of 5.2% for 2021 and 4.7% for 2022, 0.4, and 0.1% faster respectively than in its June forecast.

The chapter on Hungary in the EBRD’s regional forecast highlights that Hungary’s gross domestic product grew at a “remarkable” rate of 7.6% year-on-year in the first half of this year, driven by strong investment and significant government spending.

London-based financial institution EBRD was set up in 1991, exactly thirty years ago, to support the transformation of Central and Eastern European economies and the former Soviet region.

[Magyar Hang / MTI] [Photo: EBRD Headquarters, London]

Economic woes could lead to defeat for Fidesz next year

HVG writes that price spikes of 50-60% for energy and raw materials, as well as a shortage of goods at Christmastime, could lead to a defeat for government party Fidesz and Prime Minister Viktor Orbán in next year’s elections.

The news source spoke with a tanning salon owner who bemoaned the expected hikes in energy costs, a bookseller who is concerned about the lack of paper worldwide, and auto dealers with empty showrooms due to auto manufacturers having to shut down because of a lack of raw materials.

The end result is that economic concerns could turn voters away from Orbán’s “role as savior of the nation.” [Photo: Pavel Bogolepov/Népszava]

Government agrees to minimum wage hike

Népszava reports that the government has essentially agreed to an increase in the minimum wage from next year, after talks ended in the Competitive Sphere and Permanent Governmental Consultation Forum yesterday. LIGA Trade Union leader Melinda Mészáros stated that starting in January, monthly minimum wage will be 200,000 Forints and “guaranteed” minimum wages will be 260,000 Forints a month.

In exchange for this significant increase in the minimum wage, the government has agreed to reduce the tax burden on employers by 4%, also starting in January of next year.

The language of the agreement still has to be worked out next week, according to union leader Mészáros.