The building of the NBH in Budapest – Photo: wikimedia

Opposition: PM, cbank governor 'to blame for inflation, poor state of economy'

Central bank points to ‘strong’ influence of war on economic activity in Inflation Report

The National Bank of Hungary (NBH) acknowledged the country's "dynamic" economic growth early in the year, following a record expansion in 2021, but said economic activity in the coming quarters will be "strongly influenced" by the war in Ukraine in its quarterly Inflation Report released on Thursday.

“In the coming quarters, economic activity will be strongly influenced by the war, the policy of sanctions implemented and the governments’ responses to this extraordinary situation,” the central bank said in the report.

“The repercussions of the war have their strongest restraining effect on economic growth directly through trade channels and disruptions in international production chains. In addition, rising commodity prices and corporate costs, as well as the generally high level of uncertainty also restrain growth,” it added.

The NBH knocked down its forecast for 2022 GDP growth to 2.5-4.5 percent in the fresh report from 4.0-5.0 percent in the previous one released in December.

Presenting the report at a press conference, NBH director Andras Balatoni said the macroeconomic impact of the war as well as sanctions on Russia would reduce Hungary’s exports as trade with Russia and Ukraine falls, growth slows on external markets and supply chain interruptions weigh. Higher energy prices and inflation will increase uncertainty, resulting in a deceleration of lending and lower investments, while a slowdown in wages and transfers, adjusted for inflation, will cause lower consumption, he added.

While the NBH acknowledged a “high degree of uncertainty” surrounding Hungary’s short-term economic outlook, it said the country’s economy “continues to have a strong ability to grow”.

Opposition: PM, cbank governor ‘to blame for inflation, poor state of economy’

Opposition lawmakers have blamed the prime minister and the central bank governor for Hungary’s high rate of inflation and “the poor state” of the economy.

Speaking after the release of the central bank’s quarterly Inflation Report on Thursday, Laszlo Varju, DK’s deputy leader, at an online press briefing accused the central bank of “taking no substantial measures” to reduce inflation.

According to the bank’s latest report, headline inflation may hit ten percent this year, he said.

The caps put by the government on several product prices have only dented inflation by one percentage point, he said.

Daniel Z. Karpat, deputy leader of Jobbik, said “the dramatic deterioration of the forint” had been prepared in advance. “Viktor Orban and his team have sought to please their international allies and large exporting companies by deliberately weakening the forint, and they have been assisted in their efforts by the National Bank of Hungary,” he said.

He said the weak forint had been tantamount to the levying of an extra tax on products, which he said totalled around 1,000 billion forints (EUR 2.6bn).

Fidesz in response said that if the left wing had been in power “there would be war in Hungary and an escalation of war”. “The rate of inflation is high in the whole of Europe because of the war, sanctions and rising energy prices,” the ruling party said in a statement.

It noted that the government decided to cap the price of fuel, basic foods and interest paid on loans, and to maintain household energy price cuts to protect Hungarians. “The left wing withheld its support for all of those measures, and in fact wants to make Hungarian people to pay the price of the war through their irresponsible demands for sanctions,” Fidesz said.

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