Economic uncertainty will continue to weigh heavily on businesses, Századvég says

Recovery likely to start next year after bumpy road ahead

Hungary's economy is likely to shrink by 5 percent this year and may only reach its 2019 level in 2022, according to a report by the Szazadveg Institute released on Monday.

The coronavirus situation still presents a significant risk to the forecast, however, the think tank said.

The volume of household consumption spending is set to stagnate this year before growing by about 4 percent in 2021, it said.

Economic uncertainty will continue to weigh heavily on businesses, the state and municipalities, all of which are unlikely to invest due to a scarcity of financial resources. Government loan schemes providing cheap money for businesses will only partially offset this tendency, it added. Investments are likely to drop by 4.9 percent this year and by 3.1 percent in 2021.

Similarly, the recovery on the labour market is likely to be stuttering, Szazadveg said. As the economy opened up again, some of the newly jobless found work, but some sectors started to revive more gradually, it said, adding that the jobless rate was likely to average 4.2 percent this year and 3.7 percent in 2021.

Headline inflation has been near the top of the central bank’s target range, and core inflation well above it, with upward pressure on food prices combined with a weak forint. Inflation is expected to average 3.7 percent this year and 4.1 percent next year, so long as the forint does not weaken further, the report said.

With government spending to combat the epidemic and buoy up the economy, a budget deficit of 7.3 percent of GDP is expected this year and 3.5 percent in 2021. As a consequence, the public debt will rise to 75.6 percent of GDP in 2020 before falling to 73.3 percent in 2021, if spending is disciplined in 2021, Szazadveg said.

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