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Hungarian State Will Take an Increasingly Economical Approach Due to Upcoming Financial Crisis

Gábor Sarnyai 2018.08.17.

Along with the rest of the world, Hungary has also been discussing the next financial crisis. The following year’s budget already contains elements from the pessimistic economic expectations, despite the fact that the Hungarian economy outperformed the economic forecast of the second quarter of 2019. 

Many state officials including President of the National Bank György Matolcsy, the Speaker of the Government, and the Finance Minister Mihály Varga have been talking about the necessity to prepare for upcoming financial hardships. However, Prime Minister Viktor Orbán sparked the discussion at a Fidesz meeting in Kötcs when he firmly proclaimed that if the ministers ask for an extra 10-30 billion (1 billion HUF is approx. 3 million EUR) for projects due to increasing costs, he will reject the claims. This means that government spending practices are going to change in the future, and an economical approach is going play a much bigger role in upcoming decisions.

The PM mentioned three major indicators that could cause an economic recession. The first being the growing debt in the world’s economy. He used France as a bad example, citing its government-debt increasing from 72 to 80 percent. Another problem is the unfolding trade war between the United States and China.

The sanctions and US safeguard measures imposed on European products could profoundly affect the Hungarian economy due to the high volume of exports, which are predominantly generated by German car manufacturers and their suppliers. The PM also called attention to the remaining sanctions against Russia, “we can be sucked between Putin and Trump”. According to Orbán, the third significant change could be the end of the era of cheap money.

During a book launch, György Matolcsy also talked about the potential for another crisis. He said there is nothing extraordinary about the coming economic downturn. He cited the book Banks in History: Innovation and crisis, in which the authors stated that the upward economic periods are longer than the previous, and we are already in years that should be in recession.

The 2019 budget has already been prepped for a potential crisis. The government doubled the budget reserve to 360 billion HUF, which is 0.8 percent of the GDP.