Russia's war against Ukraine, the radically changing political environment and widespread international economic sanctions are forcing the global and Hungarian economy onto an economic path that is highly uncertain, says the latest forecast by Hungary's GKI Economic Research Co.
The war launched by Russia against Ukraine and the resulting widespread international economic sanctions are forcing the global economy, including the Hungarian economy, onto a new economic path, which can only be forecast with great uncertainty in both the short and medium term. In the short term, the most striking are the sharp spike in inflation, the general stock market fall, the general depreciation of the US dollar, and the instability of global supply chains (from energy to food, raw materials and components). The latter confront governments with the need to rapidly develop a new system of world economic relations, especially in the medium term, while taking into account environmental considerations.
Moreover, these problems are not without precedent. After all, these problems were already present last year, partly as a result of the Covid crisis and the subsequent recovery, aided by loose and only slowly (sometimes too slowly) tightening fiscal and monetary policy. The anti-inflationary tightening of economic policy around the world, planned at the beginning of this year, has been called into question, at least in terms of scale, due to the war. In addition, the relatively stable political environment to date has changed radically, as a result of military and foreign policy as well as security of supply considerations.
In recent years, the EU has ignored the fact that, in parallel with the inward turn of the United States and its loss of ground in world politics, China is growing economically and militarily, and Russia is gaining strength in the latter area in particular. While the Euro-Atlantic alliance, and the EU within it, has become more united since the Russian attack, short-term interests of individual EU member states (e.g., their different dependence on Russian energy supplies, fear of Russian expansion) may continue to make it difficult to act in unison.
For Hungary, this means that its policy, which can be characterised by opening up to the East and being anti-Brussels, has reached a dead end, and its room for manoeuvre and potential for blackmail have been greatly reduced. The one-sided Russian orientation of Hungarian energy policy has become untenable (the construction of the new reactors of the Paks nuclear power station has become virtually impossible, the operation of the exisiting Paks I power station and the supply of natural gas have become more uncertain). Access to the resources of the EU’s reconstruction fund was clearly linked to the rule of law requirements even before the outbreak of the war. This forces a review of Hungarian policy and, to some extent, of the model. Paradoxically, however, it is also possible that, in order to demonstrate unified European action, the EU will, in practice, at least for the time being, be generous in tackling the real problems of the rule of law in Hungary.
However, the Hungarian Prime Minister’s request for the European Commission to approve without delay the Restoration and Resilience Plans, Partnership Agreements and operational programmes of the member states protecting the eastern borders of the European Union, and for the Commission to allow the rapid, targeted and flexible use of EU budget resources by removing the pre-financing, co-financing and transferability barriers, does not seem realistic. This would be an open violation of the recovery fund’s objectives and instruments.
Hungary's exposure to EU transfers is very high due to the Hungarian economic policy. In the spring of 2022, the economic policy of forced growth — officially called demand stimulus, then crisis management and revival, but in reality client-builder and increasingly electoral — that has been in place since 2017 is still in place, although it is fading due to imbalances. This policy is very ill-equipped to face this new crisis. It is sufficient to think of the huge general government deficit or the overall failure of inflationary restraint attempts, which, despite government interventions, even cause supply disruptions.
During the period of energy price explosion, the inherently erroneous method of reducing utility charges becomes untenable. In order to tackle all these problems, EU transfers are necessary, and for this, reconciliation with the EU is necessary. A sharp tightening of fiscal and monetary policy, to be implemented already in the course of the year, is inevitable. There is a need to enforce the principles of the European market economy, which is what the EU expects behind the need to combat corruption. A change of strategy is therefore needed, which requires substantial concessions if the current government remains in power, and reforms in line with its values if the current opposition wins the elections.
Leave a Reply Cancel reply
Top 5 Articles
- Hungarian Inflation Rate - the Highest in Europe December 16, 2022
- Sharing Business Experience December 10, 2022
- Another Korean Battery Supplier Appears in Hungary November 17, 2022
- In Strategic Partnership with the Client January 2, 2023
- Mobility is Electric for ŠKODA December 6, 2022
Articles by Date
- ► 2023 (341)
- ► 2022 (1249)
- ► 2021 (941)
- ► 2020 (899)
- ► 2019 (237)
- ► 2018 (161)
- ► 2017 (310)
- ► 2016 (279)
- ► 2015 (324)
- ► 2014 (229)
- ► 2013 (233)
- ► 2012 (250)
- ► 2011 (303)
- ► 2010 (167)
- ► 2009 (43)
- ► 2008 (3)
No comment yet. Be the first!