Speaking at a regional conference, Varga said that the first reason for optimism is that according to the forecasts, the economies of the Carpathian Basin region may expand beyond the pre-epidemic level this year and next. As he said: Hungarian economic growth may be among the first within this, and may reach its pre-epidemic performance as early as this year. This is mainly due to supportive fiscal policies, investment incentives, tax cuts, and job protection.
The minister of finance also highlighted the soaring deficit and debt levels as the second factor, an unavoidable side effect of crisis management. As he put it: while combating the epidemic has been the primary goal in the past year, now we need to focus resources on restarting the economy. Therefore, fiscal policy in all countries in the region had to be loosened, leading to an increase in public debt.
Following a successful restart, the deficit and debt reduction path needs to be restored, Varga warned.
The third point in the presentation was the recurrent labor shortage, which could once again be a lasting challenge in the EU countries. Varga noted that in Hungary, employment has already reached the pre-epidemic level, and the unemployment rate is the sixth-lowest in the EU.
“It is no coincidence that, in relaunching the economy, we are focusing on investments that increase efficiency and competitiveness, which can offset the effects of labor shortages,” he said.
The restart is accompanied by soaring wages and rising consumption in most countries, the finance minister said in the fourth point, recalling that retail sales in Hungary rose by 6 percent and earnings by 10 percent year-on-year, according to the latest figures.
Mihály Varga identified the rise in inflation and the responses of monetary policies to this as the fifth and sixth factors. As he put it, in addition to rising wages and demand, rising inflation is also affected by international developments, including supply and value chain problems. These processes are forcing monetary policies across Europe to review and change their strategies in order to curb inflation.
Title image: Hungarian Finance Minister Mihály Varga. (source: Magyar Hírlap)