Speaking at an annual gathering of economists, Varga said the Hungarian economy was headed for a “difficult period” over the coming year due to surging inflation and higher energy costs amid the impact of the Ukraine war.
“We expect that in 2024 and after 2024 the Hungarian economy can return into the range of growth seen previously,” Varga said, presenting a finance ministry slide that projected economic contraction on annual terms from the fourth quarter of this year through to the third quarter of 2023.
Varga’s presentation came after the National Bank of Hungary, which has raised its base rate by more than 1,100 basis points since June 2021 to curb surging inflation, said on Thursday it could consider ending its more than one-year-long tightening cycle after next Tuesday’s meeting, when rates will increase again.
“Obviously the budget that was approved for next year will have to be redrawn,” Varga said, adding that Hungary must aim to restore its current account balance, which is on track for a massive deficit this year due to surging energy import bills.
The 2023 budget, approved in July, forecast economic growth at 4.1% next year, while inflation was seen at 5.2% — forecasts rendered obsolete by the surge in prices into double-digits and the hit to major European economies from the energy crisis.
Gazprom ramped up flows to Hungary via the Turkstream pipeline that brings gas to Hungary via Serbia last month after Budapest said it would seek another 700 million cubic metres of gas from Russia, its main supplier.
Varga said the additional gas purchases, worth 740 billion forints ($1.78 billion), would boost Hungary’s budget deficit by 1.2 percentage point to 6.1% of economic output this year.
He added however that Budapest considered the increase an “accounting issue” after talks on the matter with Eurostat, adding that Prime Minister Viktor Orban’s government still targeted an underlying deficit worth 4.9% of GDP in 2022. ($1 = 415.55 forints)
(Reporting by Gergely Szakacs. Editing by Jane Merriman) – Reuters
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