Hungarian Economy Expected to Dodge Recession and Grow in 2023 and 2024

    Ministry of Finance predicts 1.5% growth in 2023 and 4% in 2024 amidst international challenges

    The Hungarian economy is anticipated to avoid a recession, with projections of a 1.5% growth in 2023 and a 4% increase in 2024, despite the challenges posed by the ongoing Russian-Ukrainian war and unfavorable external conditions, according to the Convergence Program submitted by the Ministry of Finance to the European Commission.

    The Convergence Program and Its Importance

    The Hungarian government submits the Convergence Program to the European Commission annually. The document holds significance as it requires the Ministry of Finance to detail its medium-term plans for managing public finances and addressing macroeconomic developments in the coming years.

    According to a press release issued by the Ministry on Tuesday, inflation is expected to decline more rapidly in the second half of the year, with price increases easing to single digits by year-end.

    Improving Balance Indicators

    The government is making progress in improving its balance indicators. The budget deficit is projected to be below 3% by next year, and the public debt ratio is expected to decrease to 66.7% (down from 72.9% last year).

    The Russian-Ukrainian war will continue to shape the economic landscape in 2023. The ongoing impact of sanctions and the unfavorable external environment pose challenges, but the document highlights that global energy prices have substantially moderated in recent months from the peaks seen in 2022, manufacturing commodity shortages have significantly eased, and global value chains have normalized.

    Projected Growth and Central Budget Priorities

    The Convergence Program predicts growth of 1.5% in 2023 and 4% in 2024, followed by an annual growth rate of over 4% for the Hungarian economy. The government aims to maintain high employment levels, with the unemployment rate consistently remaining below 4%.

    The document projects a government deficit of 3.9% by 2023, with a steadily declining deficit in subsequent years so that the 3% Maastricht criterion could be met again after 2019. Furthermore, Hungary’s public debt could decrease to 63.9% of GDP by 2025.

    The central budget priorities for 2023 include five main objectives:

    1. Maintaining high employment
    2. Protecting the reduction of utility bills
    3. Preserving the real value of pensions
    4. Continuing to provide family benefits
    5. Further reducing the debt ratio

    Economic Recovery in the Second Half of 2023

    The Convergence Program anticipates a boost in demand and investment during the second half of the year as retail sales and household consumption resume growth alongside the disinflationary process. High household savings, which could be utilized for consumption smoothing, could support this recovery. Last year, net household savings reached almost HUF 70 thousand billion (EUR 187 billion), with households’ financial wealth continuing to grow.

    Strengthening the Hungarian Economy

    The Hungarian government is focusing on a range of measures to strengthen the economy and ensure sustainable growth in the face of international challenges. Key areas of focus include:

    Investment in Infrastructure and Development Projects

    Investments in infrastructure and development projects can contribute to the country’s economic growth. Large-scale projects, such as the construction of highways, bridges, and public transportation systems, can create jobs and stimulate economic activity.

    Encouraging Innovation and Technology Adoption

    To maintain competitiveness and foster economic growth, Hungary must encourage innovation and the adoption of new technologies. This includes supporting startups, research, and development (R&D) initiatives, and fostering partnerships between businesses and academic institutions.

    Promoting Exports and Attracting Foreign Direct Investment (FDI)

    Export promotion and attracting FDI are crucial for a small, open economy like Hungary. The government can facilitate this by implementing favorable trade policies, offering incentives to foreign investors, and promoting Hungarian products and services in international markets.

    Enhancing Human Capital

    Investing in education and vocational training is essential for a country’s long-term economic growth. By providing its citizens with the necessary skills and qualifications, Hungary can ensure a productive and competitive workforce that can adapt to the demands of the global economy.

    Implementing Sound Fiscal Policies

    Prudent fiscal policies are crucial for maintaining economic stability and ensuring sustainable growth. The Hungarian government must continue to focus on reducing public debt and maintaining a manageable budget deficit while ensuring adequate public spending on essential services and infrastructure projects.

    The Road Ahead

    While the Hungarian economy is expected to experience growth in 2023 and 2024, it is essential to remain vigilant and adaptive to the changing global landscape. By focusing on the key areas mentioned above, Hungary can secure its economic future and navigate through the challenges posed by international crises like the Russian-Ukrainian war and other potential disruptions.

    The government’s commitment to responsible fiscal policies, investment in infrastructure and human capital, and support for innovation and technology will play a significant role in shaping Hungary’s economic trajectory in the coming years. The central budget priorities for 2023, as outlined in the Convergence Program, serve as a roadmap for maintaining stability and fostering growth in the face of external challenges.

    As Hungary moves forward, continued collaboration with the European Commission and adherence to the principles outlined in the Convergence Program will be crucial in achieving sustainable economic growth and ensuring a prosperous future for its citizens.

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