Hungary’s government will decide about any changes to the 2023 budget after the third-quarter economic data, Prime Minister Viktor Orban’s chief of staff said on Thursday, noting that the government’s full-year growth projection now looked unrealistic.
Hungary’s economy shrank by an annual 2.4% in the second quarter based on preliminary unadjusted data, as record-high inflation and high borrowing costs bite.
“The biggest difficulty will be meeting the deficit target,” Gergely Gulyas told a briefing. “Based on the first two quarters the chance of achieving 1.5% (economic) growth is very low, therefore a correction is justified.”
Falling consumption has also reduced value-added tax revenues, making it more difficult to reduce the budget deficit to 3.9% of gross domestic product as planned for this year.
A sputtering economy is accompanied by the European Union’s highest inflation, which peaked above 25% year-on-year in the first quarter before slowing to 17.6% in July.
“Even though real wage growth will most probably return by the end of the summer, or September the latest, I would caution against expecting a fast rebound in consumption,” Peter Virovacz, an analyst at ING said.
The government forecast 1.5% GDP growth for this year before the disappointing second-quarter GDP data was published.
In a statement after the data, both the economy minister and the finance ministry projected a rebound for the third and fourth quarter as inflation is expected to slow further but did not publish an updated full-year forecast.
(Reporting by Boldizsar Gyori Editing by Tomasz Janowski)
