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The Hungarian National Bank (MNB) may follow the US and European central banks in cutting interest rates after the summer break, bringing the domestic policy rate down to 6.25% by the end of the year, according to an Equilor analysis.
The US presidential election is one of the most important events that could affect investor sentiment and economic prospects in the coming period, not only in the short term but also in the long term, reports Index. According to the latest analysis by Equilor, it has been a long time since the overseas economy has been so close to the end of its growth cycle.
The US economy is still growing at a healthy level, but there are already signs of problems: COVID savings have dried up and the public is covering part of its consumption with credit. The US economy has cooled noticeably after the interest rate hikes of previous years, while the Fed, in its role as central bank, has already hinted at the possibility of an imminent rate cut, which Equilor expects to be only 75 basis points this year, compared with the 110 points expected by the market.
Their analysis also points out that monetary easing is not only needed in the US: in Europe, cyclical and structural problems are complicating the economic situation, and a very specific dichotomy is being observed on the continent:
Germany, formerly a resurgent economy, continues to suffer from weak industrial performance, hampered by emerging automotive competitors in addition to high energy prices.
The analysis suggests that European policymakers are aware of the structural problems and that further ECB interest rate cuts are inevitable in the short term, but that this is only a symptomatic treatment. For Hungary, the outlook for the European economy, especially the German economy, is particularly important.
Domestic foreign trade is mainly based on serving German industry, and thus moves in line with the German industrial cycle.
Equilor’s analysis also pointed out that weakness in Western European industry is affecting Hungarian growth, which is one of the reasons why there has not been a rapid rebound this year after last year’s recession. Another important factor, Equilor said, is the drought, dragging down agricultural performance.
In addition, public confidence is recovering more slowly, therefore consumption is still below expectations. Senior analyst Gergely Muhi pointed out that the latter explains the difficult budgetary situation. The government deficit target, raised from 2.9% to 4.5%, is sustainable, according to Equilor, but the government had to make significant adjustments in the summer to achieve it.
However, if consumption recovers more slowly, there is a chance that further, non-significant adjustment measures could be announced in the coming months. Overall,
Equilor expects GDP growth of 1.8% this year and 3.6% next year, while inflation could be 4% this year and 3.8% in 2025.
Gergely Muhi said that the weak economy, low inflation and the interest rate-cutting policies of major international central banks create an opportunity for the MNB to continue its cycle of interest rate cuts, which was paused in the summer. According to the senior analyst, there is a good chance that the central bank will cut interest rates two more times this year, so the benchmark rate could fall to 6.25% by the end of the year without a significant shock to the forint. Equilor therefore maintains its January forecast that the euro could end the year at around HUF 395.
As Index notes, it is worth adding to the analysis that the government has been providing an increasing number of resources for the development of the health sector since 2010, and with the strengthening of economic performance, this can be further increased in the coming years, Mihály Varga said.
The Finance Minister stressed that since the change of government, some HUF 30,000 billion (EUR 1 = HUF 394) have been allocated from the budget for healthcare purposes, and in this year’s budget alone HUF 3,200 billion will be allocated to the sector.
“In the past period, we have implemented more than HUF 500 billion of improvements in the health sector. We have renovated 91 rural hospitals, 54 outpatient clinics, 107 ambulance stations, 23 new outpatient clinics and 41 new ambulance stations. (…) In the field of medical wages, we have recently implemented one of the biggest wage increase programs in recent decades, with a significant increase in nurses’ salaries, with the necessary funds provided by the budget.” Mihály Varga added: “Despite the difficult global economic situation, we will continue to invest HUF 2,000 billion in Hungary this year, including the new traumatology department that has just been opened.
The politician reminded that the Hungarian economy will return to a sustainable growth path this year, creating further opportunities for healthcare development.
The government is also helping to ensure the sustainability of positive trends in the economy by gradually reducing the deficit and improving the balance indicators.
Via Index; Featured image via Pixabay
