Experts concerned about Hungary’s falling economy
BNP Paribas and Morgan Stanley both expect the Hungarian GDP to fall in 2023, but the predictions are less and less optimistic. The French bank expects real estate prices to fall in Hungary, disinflation is projected to be slow due to strong wage pressures. In addition, the government’s tax measures planned for 2024 could further boost inflation. Morgan Stanley’s forecast paints a picture of an even bigger economic setback.
BNP Paribas
Portfolio reported that in the past three quarters, the Hungarian economy has experienced a significant contraction, with real GDP dropping by 0.3 percent in the first quarter. While it fell by 0.6 percent in the fourth quarter of 2022 and 0.8 percent in the third quarter compared to the previous three-month period. The main contributors to the economic contraction were weaker domestic demand due to plummeting household consumption and restocking, negatively affecting GDP growth.
According to the assessment, there are several factors to the negative economic outlook. In terms of GDP, Hungary faces a negative carry-over effect of 1 percent over the year and significantly higher inflation than in the area. According to the expert’s calculations, only the excess tax increase on fuel and tobacco products in 2024 and an additional ban on deposit interest rates could raise inflation by 0.7-0 percent in the next year. Real estate prices are still slowly rising, however, the pace is slowing down. In the future, a fall in real estate prices will be very likely.
Morgan Stanley
Morgan Stanley has an even more grim outlook on the Hungarian economy. They expect GDP contraction across the board, noting that the Hungarian economy will probably show weak GDP growth in the second quarter of 2023 as both domestic and external demand remain subdued. According to Morgan Stanley, this year’s GDP growth will be minus 0.5 percent, which is even lower than the Hungarian National Bank forecast. In 2024, they expect a minor growth of 1.9 percent.
The easing of the monetary deterioration has been driven largely by a decline in imported inflation, prompted by a stringer forint exchange rate and a fall in global commodity prices. According to Morgan Stanley, the Hungarian National Bank will most likely maintain a gradual and cautious approach to the rate cuts. As the central bank cut the overnight deposit rate by 100 basis points at its June meeting, they predicted the central bank to do the same in July, which did occur. Expectedly, the pace of easing will slow to 50 basis points a month, bringing the base rate down to 11.5 percent by the end of the year. It could be 7 percent by the end of next year.
Gvernment’s uneasiness regarding Hungarian GDP
According to the Hungarian government‘s forecast for 2023, they have expected a growth of 1.5 percent. However, Mihály Varga, the Minister of Finance of Hungary, does not believe that those calculations are correct. He expects a GDP shrinkage for this year. He said:
This year will not be easy, if we can put the recession behind us, that is good. But next year, we are looking at a 4 percent increase.
Source: