Latest Analysis: Hungarian Economy to Avoid Recession This Year, Rebound in 2024?

  • 17 May 2023 6:38 AM
  • Hungary Matters
Latest Analysis: Hungarian Economy to Avoid Recession This Year, Rebound in 2024?
Hungary’s economy is projected to avoid a recession in 2023, and return to steep growth next year, despite the protracted war in Ukraine and the European Union’s sanctions on Russia, the finance ministry said.

The economy’s foundations are robust, with one of the lowest unemployment rates in the EU and the number of jobholders stable around 4.7 million.

The country’s investment rate and export performance remain high, the statement said. Although Hungary is yet to receive the funding “it is entitled to” from the EU’s Resilience and Recovery Facility (RRF), its economic performance is 4 percentage points above the level it was before the coronavirus pandemic, while the EU average hovers around 3 percentage points higher, it said.

Economic growth was 7.2% in 2021 and 4.3% in 2022, despite the challenges Hungary faced in a “dangerous international environment,” the statement said.

The protracted Ukraine-Russia war and the related EU sanctions continue to weigh on the international environment in 2023.

“Had Hungary been able to use the recovery funding it is entitled to, economic growth would have been above 5%. By withholding the funds, the European Commission hobbled our economic performance and competitiveness,” it said.

GDP edged down by 0.2% in the first quarter, compared with Q4 2022, and by an annual 0.9%. However, the economy is expected to expand again in the subsequent quarters, the ministry said.

According to forecasts by the EC and the International Monetary Fund, Hungary will avoid recession in 2023, it said.

Government measures to improve the balance indicators will ensure the country’s security, protect families, pensions, jobs and maintain the utility price caps, the statement said.

Hungary GDP Dips 0.9% in Q1

Hungarian economic growth dipped an annual 0.9% in the first quarter, the Central Statistical Office (KSH) said in a first reading of the data on Tuesday.

Adjusted for seasonal and calendar year effects, GDP contracted by 1.1%. KSH said industry contributed the most to the decline, while the drop was moderated by the performance of agriculture and services.

Quarter on quarter, GDP slipped by an adjusted 0.2%. In a statement, the ministry of economic development attributed the decline in GDP to the war in Ukraine and “the failed, extremely harmful sanctions”.

It said it was clear from the data that the harmful effects of sanctions “peaked in the first quarter” and economic performance hit a nadir at this level. An uptick will be noticeable in the second quarter “owing to targeted government measures”, it added.

The ministry noted an increase in car and battery production, agriculture, the health industry, and in services, while the second half of the year will see a “more radical phase of growth”.

The government maintains its growth target of 1.5% coupled with the expectation that inflation will be reduced to single digits by year-end, “with a view to protecting families, pensioners, jobs and full employment”.

Hungary GDP Growth Expected at 0.4% - EBRD

The European Bank for Reconstruction and Development (EBRD) forecasts annual economic growth of 0.4% this year. In its last Regional Economic Prospects released in February, the EBRD saw GDP dropping by 0.2%. Hungary’s government targets economic growth of 1.5% in 2023.

The EBRD said GDP growth would slow this year, from 4.6% in 2022, as household purchasing power declines amid high inflation and government consumption shrinks due to budgetary restraint.

FDI inflows and other private investment are expected to support GDP growth, though “EU funds … will likely reach Hungary only in late 2023 or 2024”, it added.

The EBRD sees Hungary’s GDP growth picking up to 3.5% in 2024 as external demand improves and real incomes recover.

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