Hungary’s budget deficit will exceed the government’s target this year as an economic contraction challenges fiscal policy, according to a Bloomberg News survey.
(Bloomberg) — Hungary’s budget deficit will exceed the government’s target this year as an economic contraction challenges fiscal policy, according to a Bloomberg News survey.
The shortfall will be 4.3% of gross domestic product, exceeding the government’s 3.9% target and the median estimate of 4.1% made by economists in the second quarter, according to the Bloomberg poll. The economy will shrink 0.3% for the year compared with 2022, worse than the previous estimate that saw 0.2% growth and the government goal for 1.5% expansion.
“Obviously, keeping the budget shortfall target will be the hardest task,” Cabinet minister Gergely Gulyas said at a press briefing in Budapest on Thursday. When asked if the government’s 1.5% GDP growth target was feasible, he said “I can confirm that chances are slim.”
Hungary’s economic outlook is worse than regional peer Poland’s, where the economy may grow 0.9% this year, according to a separate Bloomberg survey. The budget deficit though may be higher there, at 5% of GDP, as pre-vote spending ahead of general elections in October raises budget pressures. The government in Warsaw raised next year’s shortfall target to 4.5% of economic output from an earlier 3.4%.
Hungary’s economy has contracted for four consecutive quarters as consumers and companies struggle with the European Union’s fastest inflation and highest key interest rates, which have depressed consumption and production and led to lower-than-planned tax revenue.
The budget has been reeling since Prime Minister Viktor Orban’s record pre-election spending last year, which was followed by expenditure on projects including the acquisition of Vodafone Plc’s Hungarian business and a new stadium for the World Athletics Championships, currently underway in Budapest.
The government is also making progress in finding investors to help acquire Budapest Airport Zrt., Gulyas told reporters. Orban had held talks with officials in Qatar earlier this year as he tries to build a consortium for the purchase, after an aborted attempt to buy it for more than $4 billion two years ago.
A silver lining from the forecast is inflation, which economists estimate will return to the single digits at year-end after peaking at almost 26% in January. The key rate is also expected to fall to 11%, from 15% currently, according to the survey.
“The main reason behind the negative twist is the more significant collapse of domestic demand,” ING Bank Hungary economist Peter Virovacz said. He said he expects the government to raise its deficit target for this year.
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