Hungarian government increases budget deficit

Hungary’s government has adjusted its budget deficit target for 2023, raising it to 5.2% of economic output from the previously planned 3.9%. This change is attributed to increased spending in several key areas, including pensions, energy subsidies, and family subsidies.

Hungary has been grappling with exceptionally high inflation, peaking at more than 25% in the first quarter of the year. This high inflation has had a detrimental impact on consumer spending and economic growth.

The country’s economy is expected to stagnate in the current year, primarily due to the inflationary pressures and reduced consumer consumption resulting from high inflation rates.

Prime Minister Viktor Orban’s government aims to stimulate growth and lending to revive the economy, especially with European parliamentary elections scheduled for the following year. Adjusting the budget deficit target is part of the government’s efforts to address economic challenges.

The National Bank of Hungary (NBH) has taken measures to combat high inflation, including raising interest rates. However, it recently cut its one-day deposit rate by 100 basis points to 13%, signalling a cautious approach to further easing.

The government’s Economic Development Ministry has called on commercial banks to impose interest rate caps on new loans for both households and businesses. The proposed cap for household loans is 8.5%, while the cap for business loans is set at 12%, both below the central bank’s benchmark rate.

Hungary’s economic challenges, including high inflation and the need to revive economic growth, have prompted a range of fiscal and monetary policy adjustments. The government is actively engaged in managing these issues, including dialogues with the central bank and commercial banks to address interest rates and lending conditions. The situation will likely continue to evolve as policymakers work to stabilise the economy and support growth.