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Hungarian economic recovery will begin first in the region: UK analyst

editor: REMIX NEWS
author: Dénes Albert

The Hungarian economy is expected to recover from the shock caused by the coronavirus epidemic earlier than in other countries in the Central European region due to its rapid vaccine rollout, according to recent forecasts by Capital Economics, one of London’s largest financial and economic analysts. 

Hungary’s growth rate may reach 6 percent next year, although the value of Hungary’s gross domestic product is likely to fall slightly short of the pre-pandemic level even in 2022.

In its comprehensive assessment of the outlook for the wider emerging European region presented on Monday, the report on Hungary emphasized that the country’s economy was doing well during last year’s second epidemic wave, but first-quarter GDP was likely to decline further given the closures aimed at curbing the third wave.

According to the study, the decline in the first quarter was driven — among other factors — by the fact that the value of industrial production decreased slightly, while retail sales fell sharply in February. According to Capital Economics, the second quarter was still off to a weak start. However, the vaccination program in Hungary is ahead of the rest of the region, and the lifting of restrictions has already begun, so the recovery is expected to start earlier than in other Central European economies, the forecast read.

The report highlighted that budget support to the Hungarian economy increased at the end of last year, and analysts at Capital Economics expect the virus countermeasures policy to remain loose in the run-up to next year’s elections.

Meanwhile, the labor market situation in Hungary remains under control, which has a supportive effect on household consumption expenditures, and Hungary will be one of the main beneficiaries of disbursements from the European Union’s recovery framework. All in all, the financial analysis company expects 4 percent GDP growth in the Hungarian economy for the whole year and 6 percent for next year. At the same time, the value of Hungary’s GDP at the end of 2022 will still be 2 percent lower than before the coronavirus epidemic.

For the first time, Capital Economics has also made a forecast for 2023. It expects the performance of the Hungarian economy to grow by 4.5 percent in that year. In this growth environment, the simultaneous gradual decline in the general government deficit and the government debt ratio is expected after last year’s surge. The deficit measured against the GDP will decrease from 8.1 percent in 2020 to 5.1 percent this year, 4.3 percent next year, and 3.3 percent in 2023. The government’s debt-to-GDP ratio is set to fall from 78 percent last year to 76.5 percent by the end of this year, to 75.5 percent in 2022 and to 74.3 percent in 2023, according to the company’s calculations.

Other major London analyst houses are also optimistic about the growth prospects of the Hungarian economy, but their forecasts are slightly more cautious than those of Capital Economics. Fitch Ratings, in its regional forecast presented in London last week, expressed the view that the economies of Central and Eastern Europe, in particular the Visegrád Four (V4), should be given additional investment and growth momentum by the European Union’s €750 billion recovery fund, the Next Generation EU (NGEU). However, according to Fitch, most of the stimulating effects of this will occur in 2022. Based on this expectation, the company reports that the Hungarian GDP will grow by 3.2 percent this year and by 5.6 percent next year in real terms.

Another global credit rating agency, Moody’s Investors Service, explained in its annual country report on the Hungarian economy this year that its positive outlook on Baa3’s sovereign debt rating reflects the strong performance of the Hungarian economy compared to similarly rated sovereign debtors and the company expects this to continue to be the case.

Moody’s said it expects the performance of the Hungarian economy to grow by 3 percent this year and by 5.1 percent in 2022. The credit rating agency is more optimistic than Capital Economics’ forecast on Monday about when the Hungarian GDP may reach the level before the coronavirus epidemic, as according to Moody’s country report, this may happen next year.

Title image: Audi factory in Győr, northwestern Hungary. (source: Audi AG)