Abstract
Economic analyses in Spring 2023
Külgazdaság has been publishing forecasts and analyses by economic research institutions, including the outlook of the National Bank of Hungary, since 2001. This year, we asked our regular contributors to reconsider, whether the tools used to curb inflation, including central bank rate hikes, are driving economies recovering from the shock of the coronavirus epidemic into recession – globally and locally. The official forecast of the European Commission struck a cautious but optimistic note: 1“Despite exceptional adverse shocks, the EU economy avoided the fourth-quarter contraction projected in the Autumn Forecast”, predicting GDP growth rates of 0.8 percent in 2023 and 0.9 percent in the euro area, with the inflation rate easing from 9.2 percent last year to 6.4 percent in the member states and 5.6 percent in the euro area. Hungary, however, has not avoided a technical recession, but is facing exceptionally high inflation in the European Union, which the National Bank of Hungary is also trying to contain with record high interest rates. The government’s aim is to avoid recession, while bringing inflation down to single digits by the end of the year. Our authors have undertaken to compare hopes with reality. Their analyses were submitted between 9 April and 20 April 2023
Budapesti Corvinus University:
The Hungarian economy amid recessionary worries, with gradually improving indicators of imbalances
PÉTER ÁKOS BOD – ILONA CSERHÁTI – TIBOR KERESZTÉLY – TIBOR TAKÁCS
The Hungarian business cycle slipped from an overheated phase to a slight recession after mid-2022 with the economy experiencing a change from a large positive GDP-gap into a similarly significant negative GDP-gap, as turns in the political business cycle allowed a restrictive economic policy stance. Clear indicators of deteriorating inner and external imbalances, such as inflation rate and twin deficit, still call consistent stabilisations stance throughout 2023. Assuming away from further shocks in external economic conditions and in geopolitics, flat Hungarian economic growth as well as material improvement in trade balance is forecast, with the headline inflation to be gradually reduced from its early 2023 peak, still staying above CEE average. Such near-recessionary economic path with negative real wages, a certain increase in unemployment rate, and growth performance falling behind those of regional peers, may trigger further policy debates between fiscal and monetary policy makers, particularly if a segment of Hungarian policymakers wanted to counter stagflation risks by administering growth promoting measures under the political slogan of reindustrialisation of Hungary. In the latter case, GDP growth would slightly surpass our main scenario in 2023, at a cost of deepening imbalances, with dire consequences for later years.
GKI Economic Research Co.
0.5 percent decline and 19 percent inflation expected this year
GÁBOR KARSAI
In 2022, Hungary was in a technical recession, facing severe imbalances and being isolated internationally. There are significant global political and economic uncertainties with the Russian-Ukrainian war, the adjacent energy crisis (in terms of security of supply and prices) and the impact of the international banking crisis this year on financial and real economic developments. The extent and timing of Hungary’s access to EU transfers could be better. The GKI’s forecast differs from the current majority view in its assumption of a downturn this year and a slower decline in inflation, as well as in the extent of the likely delay in access to EU transfers. Underlying these considerations is the assumption that the government’s political and economic policy thinking is changing at the tactical rather than the strategic level.
Kopint-Tárki Institute for Economic Research Co.:
Slight downturn, slowly receding inflationary pressure
ZOLTÁN MATHEIKA – KATALIN NAGY – ÉVA PALÓCZ
Most likely the feared recession can be avoided this year, but at the cost of inflation remaining relatively high. The global growth rate will fall short of three per cent this year, and foreign trade in goods and services is also growing only modestly. Price increases are easing somewhat, but higher interest rates curb inflation only slowly. Core inflation rates are still increasing, suggesting that it will take time until the declining trend of energy prices becomes manifest in goods prices. Meanwhile, the pace of central banks’ interest rate adjustments could slow or even stop. EU GDP may expand by 0.9 percent this year, with some pick-up next year, but we do not expect the growth rate to surpass 1.7 percent in 2024. The rate of inflation in the euro area could slow down from 8.4 per cent last year to 5.4 per cent on average this year, and next year’s 2.9 per cent rate is already close to the European Central Bank’s target. The outlook for the Hungarian economy in 2023 will be shaped primarily by the impact of record high inflation reducing household’s purchasing power and the adverse financing environment resulting from monetary tightening, which will constrain demand for both households and firms. Most of the year will be characterised by a contraction in consumption and investments. On the other hand, despite a turbulent and risk-laden international environment, the contraction in domestic demand is likely to be largely, if not fully, offset by a contribution from net export growth. Overall, GDP is currently expected to decline by around 0.5 percent, followed by modest growth next year.
Magyar Nemzeti Bank:
Inflation on a declining path
NORBERT CSORBA
The Hungarian economy expanded dynamically last year. With the 4.6 percent annual GDP growth Hungary placed in the middle of the growth ranking of European countries. The time profile of growth was characterised by a duality: the dynamic growth in the first half of the year slowed down in the second half. Most sectors contributed to growth, while agriculture hampered GDP due to the extraordinary drought. As a reflection of last year, Hungary’s growth in 2023 will also be characterised by duality in terms of its time profile and structure. Economic growth will accelerate in the second half of the year and is expected to average between 0.0–1.5 percent for 2023 as a whole. Structurally, it is entirely based on net export growth, while inflation holding back consumption and the uncertain global economic environment restraining investments. Domestic inflation peaked in January 2023. In February, the year-on-year headline inflation was 25.4 percent, while core inflation was 25.2 percent. Inflation slowed down by 0.3 percentage points compared to the previous month, the price dynamics of processed food, alongside with fuel prices contributed the most to the disinflation. From the second quarter onwards, the CPI is expected to decline at an accelerating pace. Both external and internal factors point towards disinflation. Inflation will return to the central bank’s tolerance band in 2024. Labour demand has so far not reacted significantly to the economic slowdown and remains robust. Stable labour market developments are helping to re-launch economic activity. The current account balance reached its low in 2022, with the deficit rose to 8.1 percent of GDP. In line with the improvement in the external trade balance, including the energy balance, the current account balance is on an improving trend, the deficit will be halved in 2023.
Macronóm Institute:
Economic growth amid increasing risks
DIÁNA HORVÁTH – DÁNIEL MOLNÁR – GÁBOR REGŐS
The Russian-Ukraine war’s outbreak has rewritten all previous economic expectations, and although last year’s economic growth was still favourable, the dynamic slowed down by the end of the year. The exploding inflation constrained consumption, while the tightening of the monetary policy pushed back investments, at the same time, employment appeared to be crisis resistant. The economic processes of the second half of the last year will stay with us at the beginning of the year, however, even with this, we expect growth throughout the year, the rate of which – with strong downside risks – may reach 0,8 percent, and then accelerate to 3,2 percent next year. The driving force of the growth this year will be net export, which will be supported by external demand, and the investment of the previous years turning into production. By the second half of this year, due to the slowdown of the inflation, through the growth of the real wages, the contribution of the consumption can become positive, and from 2024, investment can rise again. At the same time, there are significant risks surrounding our forecast: the external environment can dampen growth either through shocks in the energy markets, financial markets or supply chains, but the 8slippage of EU funds can also set back economic prospects.
Non-monetary management of inflation in the EU countries
Short-term fiscal and regulatory measures in the EU countries to the increase
in inflationary pressure in 2022.
VIVIEN CZECZELI – PÁL PÉTER KOLOZSI – KINGA VIRÁG KOVÁCS – GÁBOR KUTASI – SZTELLA TORDA
A rapid rise in inflation has become a key economic policy challenge at the global level in 2022. The rise in consumer prices was driven by supply as well as demand factors. This paper reviews the anti-inflationary measures taken by non-central bank government institutions in ,European Union (EU) member countries to counter primarily the socio-economic effects of price shocks. Short-term measures are summarised in the analysis. The database consists of articles published in the online media between January 2022 and February 2023. The measures enacted are classified into sub-groups. According to them, their most common type was tax regulation, with Hungary introducing the most numerous and diversified measures of all EU countries.