The government will not even be able to meet the growing deficit target in 2023, and the deficit will remain high in the following years. In 2024, the national debt as a share of GDP will increase. The committee expects a slower economic recovery than the government.

In 2023, Hungary’s fiscal deficit will reach 5.8 percent of GDP, then 4.3 percent in 2024, and 3.8 percent in 2025, the European Commission wrote in its latest forecast. In other words, according to the committee, the government will not be able to maintain the original deficit target (3.9 percent) but rather the increased target (5.2 percent). As in 2024, the deficit will be higher than the government’s budgeted deficit (2.9 percent) and the 3 percent expected by the European Union.

The national debt will fall to 69.9 percent in 2023, thanks to very high inflation, but because of high deficits expected in 2024, it will rise to 71.7 percent that year.

This also differs from the budgeted value (66.7 percent). In fact, by law, the national debt should not increase—in other words, a budget cannot be created that anticipates an increase in the national debt. Nothing forces the government and parliament to correct budgets that have become unsustainable, and there are no penalties for deviations from the budget law.

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According to the committee, the main reason for the budget faltering is the lack of tax revenues due to the economic recession (mainly value-added tax), the high cost of financing public debt due to high interest rates, and high pension payments. Due to high inflation rates. Although there are positives, such as reducing energy import costs, starting economic growth, and postponing the replacement of central bank capital, on the other side, on the revenue side, the government promised to cancel some special sectoral taxes. Overall, the deficit will remain high in the coming years.

The EU’s deficit target is 3%, although the Commission has not held member states to account for compliance with this since the pandemic. However, this will end soon.

According to the committee’s forecast, GDP will decline by 0.7 percent in 2023 – the government has planned for growth, verbally, and has expected “positive zero” for a long time, and it has been admitting for some time that the economy will contract in 2023. The year as a whole. According to the Commission’s forecasts, there will not be a significant recovery in the following years either, and it expects an increase of 2.4% by 2024 and 3.6% by 2025. In other words, the recovery is slower than the government.

The committee expects the inflation rate to reach 5.2% by 2024, and 4.1% by 2025 on average annually. (The central bank’s inflation target is 3 percent, which the central bank itself expects to achieve by 2025.) In terms of moderating inflation, there is a risk that labor shortages could cause the wage rate to rise by more than 10%. An increase can be expected. Although large companies are doing well, smaller companies are experiencing financial pressure and will have to reflect the costs of wage increases in their prices. Inflation is expected to remain high, especially in the services sector.

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