Hungary Faces Slowing Economy

Analysts of several London-based financial institutions stated last week that they doubt the Hungarian government’s abilities to keep public sector deficit at 4.7% of GDP, the government’s last published deficit target figure.

At the same time, Péter Adamecz, Vice President of the National Bank of Hungary (MNB), told Reuters that he foresees 5.4% deficit as a realistic target, a figure 20 basis points worse than the average calculated from forecasts of analysts polled by the newswire.

The government has stated that there are no threats to meeting the target figure. Tamás Katona, political state secretary of the Finance Ministry, said the balance of state budget is expected to be positive in July and December, helping to meet the targets by year-end.

Finance Minister János Veres hinted in two interviews last week that the government plans measures that will help keep the balance of the public sector.
In each of the past three years, warnings issued in May that the deficit will be higher than planned were justified by official data by about the fall. A similar scenario is expected for this year. However, this time Hungary is under procedures of the European Committee for missing the limit of public sector deficit three times, and it could face penalty if it happens again.

The skeptical forecasts are also fueled by a significant drop in economic growth. Industrial production in Q1 was 1.7% up from the same period last year, slower pace of growth than expected. In the meantime unemployment jumped one percentage point to 7.1%. Economic growth in the first quarter is expected to come to 3% of GDP, according to Ecostat. Final figures are expected from the Central Statistics Office on May 31.