The Washington-based International Monetary Fund (IMF) improved its forecast for Hungarian economic growth in 2021 from 4.3 to 6.2 percent. In the annual review of the IMF under Article 4 of the organization, IMF commends the Hungarian government on crisis management, assessing that the decision makers ’response to the crisis was significant and arrived on time.
“Following the first quarter outcome, a strong recovery is expected to take hold in 2021. Growth is projected around 6 percent, driven by net exports, as external demand improves, and recovering consumption supported by fiscal outlays, still fast-growing private wages, and accumulated households’ savings”, the report said.
The IMF positively assessed the Hungarian Central Bank’s liquidity-enhancing measures, adding that the monetary policy response to the crisis was appropriate and that a temporary jump in inflation is acceptable. According to them, no more than a moderate tightening of monetary conditions will be needed in the near future.
The 6.2 percent GDP forecast is also important because Prime Minister Viktor Orbán recently announced that if growth reaches 5.5 percent in 2021, parents raising a child will have their personal income tax paid during the year reimbursed up to the level of the average wage.
Support for the SME sector can help Hungary
In the evaluation, the IMF also made suggestions, including that Hungary must prioritize healing the wounds caused by the crisis and making the economy more sustainable and flexible in the future. According to them, targeted support for SMEs, a strengthened social safety net and investment in infrastructure and human capital can help to achieve these goals.
It is also important to make the economy greener, which, according to the IMF, should be supported by higher carbon pricing, and it would be beneficial to encourage green investment through transparent tax subsidies. According to the IMF, the Hungarian state should save on public sector wages: a further reduction in public labor costs as a share of GDP is proposed to increase the room for maneuver in the budget.
Title image: Oil and gas group MOL’s Danube refinery in Százhalombatta, central Hungary. (source: MOL Group)