Economic analysts in the Arena: after the “hangover”, the Hungarian economy may soon be on a dynamic path

In January 2023, the inflation rate in Hungary was 25.7 percent, while it is currently within the central bank’s target range. Tamás Isepy said in the InfoRádió Aréna program that according to most analysts’ expectations, this figure will not change significantly in the next period, that is, it may remain around 4.4 percent in 2024. He added that economic growth could be higher compared to previous forecasts, an increase of between 2 and 3 percent can be forecast. As he put it, the budget deficit is already “a more difficult area”, at the moment there are still many question marks. However, the downward trajectory may “come together” in terms of public debt.

István Madár, an analyst at Portfolio, compared the situation of the Hungarian economy over the past four years to when “everyone got really drunk at a merciless, wild lakeside party, and then comes the hangover phase.” He recalled that in recent years, the coronavirus epidemic, the energy and forint exchange rate crisis, as well as the inflation crisis have “shaken” the Hungarian economy. “We started to come out of these crises, since energy prices fell, we managed to put an end to the gross inflation of wages and earnings, and our external balance was restored. “Many people believed in the previous weeks that now it is not such a big problem and we can start growing from here,” explained the expert.

He believes that the domestic economic situation seems to have stabilized by now, from which most analysts deduced that a dynamic period may follow. He recalled that recently, even the Hungarian government announced a 4-5 percent economic growth for this year. “Now, however, we are much more likely to notice that the mentioned hangover is not the condition of the midday hours, but only of 8-9 in the morning, when everyone is still a little sick, which is a good indication that the population does not want to consume as much” – explained István Madár.

The Portfolio’s analyst said: it turned out that the Hungarian economy is currently unable to produce vigorously even for export, which once again proves that “this next day is off to a rather bumpy start”. This explains why experts are no longer as optimistic as they were at the end of 2023 or the beginning of this year.

and the forecasts only consider a growth of around 2-2.5 percent likely.

The fact that the external environment is not supportive, and that residential consumption is not increasing, while a significant increase in real wages is expected this year, does not favor breakout opportunities or consolidation. “In addition to the 4-5 percent inflation, there will be a nominal wage increase of over ten percent, which means that the real wage increase could be around eight percent this year,” he added.

Economic policy does not provide the greatest help

István Madár calculates that the increase in real wages will sooner or later “boost” household consumption. At the same time, according to his opinion, exports are suffering, the recording market is “not in very good shape”, although a favorable turn is expected in this area as well in the second half of the year. As he put it, “the year started more bumpily than expected”, however, the picture may clear up with time and

the Hungarian economy may be on a dynamic path in the near future. If this happens, the standard of living may also improve.

According to the analyst, this positive process can be stopped in the short term by the fact that “economic policy cannot really provide much help in this regard”.

István Madár explained: the forint is still volatile, inflation cannot be calmed down yet, and the fact that “we are running with one of the largest budget deficits in Europe” adds to the problems. In this regard, he noted that the Hungarian budget is usually settled to some extent at the end of election cycles, and according to him, this will be the case in 2026 as well. “At that time, according to the dream book, budgets don’t tend to get tighter,” he said.

You can’t prepare for shocks

According to the Portfolio analyst, it cannot be ignored that due to major crises caused by wars or the energy crisis, it is now much more difficult to make global economic forecasts than before. He recalled that until the 2007-2009 global financial crisis, the world economy was in the period of the so-called Great Moderation, which, moreover, was postponed in many places until the outbreak of the coronavirus epidemic. In this period, the economic indicators indicated stable results, there were no big swings in terms of inflation or GDP growth, and at that time economists actually only argued with each other about tenths of a percentage point in each forecast. Since then, however, “several shocks have hit the whole world”, which caused various structural changes and “roughly shook” the world economy.

István Madár warned that we still haven’t returned to the Great Moderation era, and according to many experts, we won’t soon. Due to crises and the significant interventions and changes accompanying crisis situations, an economic analyst has to reckon with many more unexpected things and developments,

in more than one case, it is not even possible to foresee such a far-reaching event or circumstance.

For this very reason, the authorities have been speculating recently as to whether there will be another “inflationary desert” like before 2019, or whether there may be more economic shocks that could make the performance of the economy “zigzag” if appropriate.

Sometimes the alarm bell rings

The analyst added: now it appears that “we are rather coming out of this turbulent, stormy period, most people expect it to smooth out, but at the same time, the alarm bell rings in the minds of many that another crisis could strike at any time due to high interest rates, large debts or some unexpected economic , a geopolitical event, possibly due to another pandemic”. From this point of view, many economic experts have serious doubts,

and in terms of forecasts, the current situation is more uncertain than ever before.

According to Tamás Isépy, every shock is different, you cannot prepare for them in advance, and just because we survived or managed a crisis that occurred at a particular time, we have not yet come into possession of a recipe based on which we will surely be able to act effectively and efficiently the next time against another crisis. Századvég’s macroeconomic business manager explained: it is possible to look back up to a hundred years to see how a country or region reacted to inflationary shocks, or how inflation returned to a calmer period after an outstanding inflation figure.

You can find very far-reaching effects, ripple processes and measures in the past, but these crisis management methods cannot always be learned or mastered in such a way that you can confidently use them later, in case of another economic shock, because it is not certain that they will prove to be effective again.

How are forecasts made?

Tamás Isepy noted: analysts are constantly gaining new experiences, but their work is greatly complicated by the fact that extreme economic events can happen every year, every ten years or even every hundred years, so it is difficult to make accurate or approximately accurate forecasts. Regarding the inflation situation, he said that in the recent period, we got used to the zero percent interest rate environment, the very low inflation environment, and the energy price increases and other related negative effects showed that we have to expect an outlier inflation rate from time to time.

He recalled that not so long ago, in the 1990s, inflation was around 30 percent in this country, which lasted for quite a long time.

in the past period, however, we “navigated back to the inflation target band of the central bank”.

In the end, Tamás Isepy said: it is extremely difficult to determine exact estimates, analysts and modelers try to think along certain scenarios and scenarios, and based on these they make forecasts regarding, for example, energy prices or the inflationary environment. After all this, they set up four or five scenarios and possible outcomes, and finally choose the one that they think is most likely.