GKI: Hungarian Economy Past the Worst of the Crisis

Last year, the Hungarian economy emerged from the most difficult phase of the crisis caused by the handouts before the 2022 elections and the global economic consequences of Russian aggression against Ukraine. However, according to research by the GKI economic research institute, the government's ideas are unlikely to put the economy on a sustainable growth path, which also lacks solid results and good economic policies.

One of the most important results is that the external balance, which showed a dramatic deficit in 2022 (current account deficit of EUR 13.9 billion in 2022), turned positive already in the second quarter of 2023, and then turned positive in the first ten months, with a current account deficit of EUR 0.7 billion. This is a very big achievement even if we know that the exchange rates played a big role in the changes and that the price of the improvement was the recession.

The recession also ended in the second third quarter of 2023. But the annual Hungarian economic contraction was probably the second deepest in the EU. It was the expansion of agricultural GDP by around 60% that allowed the Hungarian economy to contract by only around 0.5% in 2023. This amply compensated for the nearly 25% decline in 2022. If agricultural GDP had only compensated for the decline in 2022, i.e. had only reached the 2021 level, the decline in the Hungarian economy last year would have been much deeper than the actual decline, at around 2%.

On the positive side, inflation turned into a single digit number in October. Last year's annual average price increase of 17.6% was well above the government's target of 15% and the highest in the EU. But the 5.5% rise at the end of the year is surprisingly low and only the sixth highest in the EU (although the method of calculating energy prices, which plays a significant role in this, is disputed and Eurostat has yet to comment.)

By the end of the year, the policy rate had also fallen significantly, from 18% to 10.75%, although the government considers this unsatisfactory given the real interest rate of around 5% in December. After falling by 7.6% in January 2023, real earnings already rose by 5.6% in November, and in December they rose sharply and temporarily by more than 10%, due to a further decline in the rate of price increases and the frontloaded minimum wage increase. On an annual average, however, real earnings could have fallen by 2-2.5% and real income by 3.5-4%, due to the high base and pre-election spending.

The unemployment rate has been on the rise for about two and a half years, standing at 4.3% in September-November 2023, 0.5 percentage points higher than a year earlier. However, it is particularly low in the EU.

By the end of the year, the government managed to conclude an agreement with the EU that gives it access to around a third of EU transfers to Hungary. The government sees this as a success for its tough, cunningly blackmailing negotiating tactics. Although the stalling has already caused a lot of losses, the damage to research and education from cutting international ties is huge. Moreover, the availability of two thirds of the transfers is still in limbo. Indeed, the impossibility of agreeing on part of these has already been announced. In addition, the EU will have plenty of scope for control and suspension of the acceptance of Hungarian invoices.