The outlook for the Hungarian economy is favorable, returning to dynamic growth next year, the Minister of Finance said at an international economic forum in Budapest on Thursday.
Finance Minister Mihály Varga, speaking at a meeting of the Official Monetary and Financial Institutions Forum (OMFIF), a London-based economic policy and monetary think tank, stressed that the Hungarian economy has recovered quickly after the pandemic, with GDP growth of 7.1 percent in 2021. Even though growth has slowed due to the economic impact of the Russian-Ukrainian conflict, the Hungarian economy will return to dynamic growth in 2024, he said.
The current account balance improved in the first half of the year and the external balance could reach a record high this year. Investment is up, with the highest investment rate in the EU. The growth prospects for investment are good, supporting overall economic growth, the Finance Minister noted.
Mihály Varga added that the government insists on the continuous reduction of the deficit.
This year, the government sector’s deficit on the basis of the European System of National and Regional Accounts (ESA) is expected to be 5.2 percent of GDP, and by 2024, it is expected to be 2.9 percent, which is necessary to avoid the EU’s excessive deficit procedure.
At the international forum, Barnabás Virág, Deputy Governor of the Hungarian National Bank, said that in the fight against inflation a major challenge is to bring down the consumer price index, especially in our region, and that there is now a disinflationary trend in the eurozone and the Central and Eastern European region.
Positive real interest rates have returned after more than a decade, he added, indicating that geopolitical tensions have continued to intensify, increasing the risks to growth prospects and investor sentiment more generally. Uncertainty has been further heightened by the renewed Gaza-Israel conflict in early October, adding to the generally rising geopolitical tensions.
He pointed out that
inflation in Hungary has fallen to single digits after peaking at 25.7 percent in January and could be around 7 percent by December.
The annualized three-month change in core inflation, an indicator that better captures underlying processes in the current situation, has fallen below the four percent level last seen before the pandemic. He added that
there is a good chance of achieving balanced economic growth next year as inflation eases, with a three to four percent growth rate in 2024.
Positive real interest rates are necessary for disinflation to continue. He remarked that from October, monetary policy entered a new phase, focusing on setting an interest rate supportive of disinflation, using a data-driven cautious approach. The strong disinflation and the reduction in the country’s vulnerability will allow the Hungarian National Bank to continue to cut the base rate in the coming months, with the 75 basis point cut remaining in November. By the end of the year, the base rate could fall below 11 percent and be in single digits by February 2024 based on current data, highlighted Virág.
Via MTI, Featured image: Pixabay