FinMin puts 2022 GDP growth at 5.9%

Analysis

The Finance Ministry projects the economy will expand by 5.9% next year, boosted by government measures that will spur consumption, forecasts for 2021-2025 released on Wednesday show, according to a report by state news wire MTI.

Lawmakers had assumed GDP growth of 5.2% when they approved the 2022 budget act.

The fresh forecast shows household consumption rising 6.7% in 2022, accelerating from an expected 3.6% growth in 2021. Public sector consumption growth is set to slow to 1.1% in 2022 from 3.1% in 2021.

The Finance Ministry's forecast shows government measures, including a personal income tax exemption for under-25s, a PIT tax rebate for families raising children, a pensioners bonus, public sector salary increases and an over 19% rise in the minimum wage, will add 1.63 percentage points to GDP growth in 2022. Those measures will contribute 4.59 percentage points to consumption growth.

The ministry said "favorable employment and income trends" will be "driving forces" for growth in 2022, while "fiscal policy, new capacities at big companies and a pickup in demand resulting from developments undertaken with national and EU resources" will support the economic expansion as well.

The ministry augured a favourable outlook further on the horizon, too, as turbulence caused by supply chain interruptions and the global semiconductor shortage ease, and Hungary's biggest export markets are in the recovery phase. However, it acknowledged "numerable risks" surrounding the recovery on external markets, saying that "a return of more volatile periods cannot be excluded".

The ministry puts GDP growth at 4.3% in 2023, 4% in 2024, and 4.2% in 2025, rates that keep Hungary's growth two percentage points over the EU average.

The forecast confirms the 4.9%-of-GDP ESA general government deficit target for next year.

Finance Minister Mihály Varga announced the new target - compared to 5.9% assumed by MPs during the vote on the 2022 budget act - earlier in December. Prime Minister Viktor Orbán said the reduction was necessary to ensure the gap is "somewhere in the middle" compared to the deficits of other EU member states which are now set to be lower than earlier expected.

The forecast shows the ESA deficit narrowing to 3.5% of GDP in 2023, before falling to 2.5% - under the 3% Maastricht threshold - in 2024.

Hungary's cash flow-based general government deficit is set to reach nearly HUF 5,147 trillion this year, HUF 1.168 tln more than the accrual-based ESA deficit which does not include pre-financing of EU-funded projects from national coffers.

The ministry forecasts Hungary's state debt relative to GDP will fall from 79.9% of GDP at the end of 2021 to 77% at end-2022 and 74.9% at end-2023.

Hungary's state debt relative to GDP was on a downward path for the better part of a decade before the coronavirus crisis, reaching 65.5% in 2019, down from 80.3% in 2010. 

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