Hungarian Minister of National Economy Márton Nagy gave a detailed interview to Hungarian website Index, where he discussed the current state of the Hungarian economy and the direction of economic policy. The minister stated that despite the ongoing crises, the Hungarian economy remains resilient; however, for more robust growth to happen the war in Ukraine must come to an end.

The interview also revealed that the Hungarian economy could grow by 2 per cent this year, a downward revision from the 4 per cent forecast at the end of last year. This adjustment is attributed to the population’s caution in spending, which is only gradually diminishing after last year’s high inflation. Nevertheless, consumption growth is driving the Hungarian economy this year, even though the savings rate remains at a historically high 15 per cent. Márton Nagy noted that while investment and exports are exerting a negative impact on growth, sectors such as retail sales, tourism, and services are contributing positively.

Speaking about the high savings rate, the minister explained that it is primarily driven by higher income earners, while the anticipated increase in consumption has not materialized among those with below-average incomes. Meanwhile, the data indicates that the middle class and those with below-average incomes are directing their spending towards housing, as reflected in housing market trends. Márton Nagy emphasized that this highlights an important lesson for policymakers:

housing is a higher priority for the population than general consumption.

The minister observed that the external environment, particularly the crisis in the German economy and the European electric car sector, is adversely impacting economic growth. Márton Nagy also pointed out a surprising oversight: there is still no EU directive regulating electric cars. This lack of a unified strategy is hindering the transition and causing hesitation among car manufacturers.

Márton Nagy further noted that a significant challenge is that, unlike during the COVID-19 pandemic when both the central bank and the budget were able to accelerate economic support, this is not feasible now. The planned budget deficit of 4.5 per cent for this year and 3.7 per cent for next year is neutral in absolute terms, but relatively restrictive compared to last year. Additionally, interest expenditure is high and could reach its peak this year.

In response to criticism that the 2024 budget has merely plugged gaps, the minister emphasized the importance of recognizing that the recent crises had not compromised the fundamental structure of the economy. He noted that there had been no mass redundancies and that employment levels remained high.

‘The increase in the budget deficit was justified by the need for rapid and effective crisis management. Therefore, the budget does not have a structural problem, and the fundamental tax system should remain unchanged,’ Márton Nagy argued. He explained that the challenges related to the 2022 energy costs, last year’s tax revenues, and this year’s interest payments had to be managed from a cash-flow perspective, without necessitating changes to the core tax system.

In addition to taxes on extra profits, the postponement of certain investments also plays a crucial role in optimizing liquidity, allowing for the preservation of key social protections, such as the cap on utility costs and the 13th-month pension. However, the budget’s flexibility is further constrained by the Maastricht criteria, which Márton Nagy criticized for limiting the EU’s competitiveness. He argued that these criteria hinder the EU’s ability to invest in critical areas like the digital and green transitions, especially when compared to the spending strategies of the United States and China.

The minister emphasized that economic growth must be inclusive, with efforts to stimulate growth, specifically targeting rural areas, young people, families, and domestically-owned small and medium-sized enterprises (SMEs).

However, he provided limited details about the specific programmes, including the doubling of the family tax credit for children previously announced by Viktor Orbán, as well as measures aimed at reducing tax costs or administrative barriers to home ownership.

He also highlighted the need to support young people in rural areas as they start their careers, proposing the development of a new, targeted investment support system for SMEs. Regarding the minimum wage he expressed the government’s intention to bring it closer to the average wage, aiming for it to reach 50 per cent of the average wage.

Related articles: