The shocks of the past few years to the global political, institutional, and economic framework have sent ripples throughout the world, with the EU being among the most impacted. To get a closer look on how these impacts are translated to the Hungarian national economy, on February 2 we invited Equilibrium Institute to give a presentation to our Patron members.
Mr. Zsolt Becsey Senior Economist of Equilibrium talked about among others the effects of the international energy market on the domestic economy, as well as economic risks and prospects for this year and 2024.
Regarding the energy market, he stated that there are both upside and downside risks in the national and international landscape. The threefold question of how to secure energy at affordable prices while reducing our energy dependence from Russia remains one of the biggest challenges to be addressed in 2023, while securing oil and petrol supply also continues to represent a significant drain for the EU.
Mr. Becsey also added that most energy commodity indices are easing, such as the one of natural gas, oil, or coal, especially compared to last quarter data, however, some commodities, more precisely, corn, silver, copper are on a steadily rising trend despite the economic slowdown.
Even though there is some easing, high energy and fuel prices are at the forefront of inflation, driving it higher in 2023 than last year. Inflation is expected to rise from 14.5% last year to 17% in 2023 and then decrease to 5% in 2024. In addition, high energy and fuel prices will have a major impact also on consumer food prices that affect consumption.
On the consumption side, based on the presentation of the Equilibrium Institute, in Q3 2022, it has happened for the first time since 2010 that households could not spare from their disposable income. This brings caution in terms of consumption leading to weakening internal demand with a special negative impact on services.
On the production side of the economy, manufacturing along with government services could lead the way. On the contrary, market services might see a contraction this year and the next.
As for wages in Hungary, an average of 12.7% is predicted in 2023 and 11.1% in 2024 following a 17.3% increase in 2022. The wage increase is primarily driven by labor shortages, inflation, and minimum wage increase at the beginning of the year. Despite the growth, high inflation will reduce the purchasing power of wages and could result in the so-called wage-price vicious circle.
GDP growth in Hungary is expected to lag the 2022 rate of 5% by only reaching 0,1% in 2023 and 3,1 % in 2024.
Data, including high inflation and stagnating GDP, as well as data on external liquidity, domestic finances, banking, and policy system show that in comparison with the economic indicators of other surrounding countries Hungary underperforms the region.
The situation of the Hungarian currency does not paint a cloudless picture either. Forint may remain on a slowly depreciating path with a possible EUR/HUF an average rate of 411 HUF in 2023 and 420 HUF in 2024.
Besides, there are macro financing risks to consider: our sovereign debt has increased significantly due to the lack of EU funds and the declining interest in HUF bonds and may rise again to 20 percent in 2023. On the other hand, the 2023 budget will save on current expenditures and investment. The evolution of the trade balance will determine this year’s growth.