GKI: Today’s Hungarian crisis-management economic policy doesn't even have a name, let alone a well- thought-out strategy

A recently published flash report from the Hungarian Central Statistical Office showed that inflation in November 2022 was a record 22.5 per cent. This means that in real life, for example for food, Hungarians are paying almost one and a half times more than they did this time last year.

So far, the government's inflation-reducing measures seem to be less effective, and reaching a single-digit inflation the government has been talking about by the end of 2023 is extremely unlikely according to the 2022-2023 forecast of GKI Economic Research Co. Their forecast shows that the Hungarian inflation and policy interest rates are by far the highest in the EU, and the weakening of the forint this year is also extreme.

Inflation is projected to accelerate further in the first months of 2023, peaking at around 26%, with a likely annual average of 18%.

The economic analysis by the benchmark organization states that the fundamental problem with Hungarian economic policy is that the measures to improve economic disequilibria are repeatedly overridden by politics. In their opinion, the lack of a strategy is clearly illustrated by the fact that in the first half of December 2022, Hungary does not even have a valid budget, let alone the macroeconomic forecast on which it is based. It has no inflation and income forecasts, which are essential for a wage agreement.

One reason for this is that the government is essentially making economic policy a power-technical and PR issue.

The government’s approach to the problems is essentially power-technical and PR-based, not economic.

For example, it clings to pro-people “achievements” until the last possible moment. In principle, we are still living in the period of overhead reductions, and despite supply disruptions, they waited until the EU’s oil price cap was introduced to remove the fuel price cap, even though the two had nothing to do with each other – except at the level of propaganda.

This often leads to ill-considered haste and political overriding of economically sound decisions (for example, in the case of the wrangling over price caps and interest rate hikes), which results in much greater losses overall than what’s inevitable (for example, in the form of a weak forint and high policy interest rates) – GKI’s forecast concludes.

GKI expects some kind of agreement with the EU this year, meaning no permanent loss of resources, but no substantial fresh money coming into the country for at least six months, and it takes the continuation of the disputes for granted. The report says that the government's only remaining foreign policy tool is to use its blackmail potential to drag out a deal with the EU until the last minute in order to make as few "concessions" as possible, and in effect accept the rules and regulations that are normal in European market economies. It is not known when and how much EU transfers may arrive in the country.

According to GKI, meeting the demands of the EU and the European market economy requires a change in Hungarian economic policy and in the economic model the realisation of which is far from certain and even highly doubtful. It is to be feared that Hungarian policy is leading the country towards permanent isolation and economic stagnation, and a further lagging behind in the region.

In its forecast, the organisation also looks at global economic trends. The European Commission forecasts that the EU will enter a technical recession at the turn of 2022-23, meaning that GDP in the last quarter of this year and the first quarter of next year will be below the previous quarter. Although growth may resume in the spring, due to some slowdown in inflation, it will be modest due to weak demand. Inflation in the EU is expected to be 7% in 2023, compared to 9.3% in 2022.

Furthermore:

• the population's real income, savings and housing wealth will fall sharply in real terms, so that growth in household consumption will slow from 3.7% in 2022 to 0.1% in 2023.
• investment growth will also decline in the EU, from 3 to 0.5%
• unemployment will rise moderately

After a decline of more than 1 percentage point this year, due to high energy prices, the EU's general government deficit as a share of GDP will rise by around 0.2 percentage points to 3.6% of GDP in 2023.