July 15, 2024

Hungary’s Finance Minister Warns Against Complacency as Inflation Eases

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Hungary’s Finance Minister, Mihaly Varga, cautioned against complacency despite a significant drop in the European Union’s highest inflation rate. Varga’s remarks highlight a policy divergence within Prime Minister Viktor Orban’s government, with conflicting views on fiscal rules and inflation targets to address the economic challenges facing Hungary.

Recent data revealed a notable decrease in Hungary’s inflation rate, which had reached 25% a year ago, now standing at 5.5% annually in December. While this represents a considerable improvement, Minister Varga emphasized that the country should remain vigilant, warning that any new supply shock to the global economy could reignite inflationary pressures.

The comments from Finance Minister Varga bring to light a policy rift within the Hungarian government. The economy minister has consistently advocated for more lenient fiscal rules and a higher inflation target as measures to pull the economy out of recession. This internal disagreement suggests differing approaches to economic recovery within the highest levels of Hungary’s leadership.

Minister Varga reiterated the government’s estimation that prices in Hungary would rise by 5.2% in 2024. This projection indicates a cautious optimism about the trajectory of inflation in the coming year. The surge in inflation in 2023 had contributed to pushing the Hungarian economy into recession, prompting a downward revision of the 2024 growth forecast to 3.6% at the end of the previous year.

The persistent impact of the COVID-19 pandemic has left Hungary grappling with a substantial budget deficit, averaging nearly 7% of GDP over the past four years. To meet Prime Minister Orban’s target of reducing the shortfall to 2.9% of GDP this year, the budget deficit would need to more than halve. This poses a significant challenge for Hungary as it navigates economic recovery while managing fiscal constraints.

While the decline in inflation is a positive development, concerns linger about the ongoing economic recession. The internal debate within the government reflects the complexity of finding the right balance between fiscal measures and inflation targets to stimulate economic growth while maintaining stability.

Financial Desk

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