The actual forecast of Századvég Konjunktúrakutató also takes into account the effects of the current Russian-Ukrainian war situation. It is important to emphasise the uncertainty surrounding the war: we do not see the end of the war, nor the damage caused by the war and the sanctions. Our estimates show that Hungary’s economic performance may expand by 3.9 percent in 2022 and 4.7 percent in 2023. Since our previous forecast in December 2021, we have revised our growth expectations and, on the whole, modified downwards due to the war situation. Following a much better-than-expected GDP of 7.1 percent in the fourth quarter, we would have adjusted our forecast for growth upwards to close to 6 percent, but we have revised our expectations and modified downwards due to the outbreak of the Russian-Ukrainian war and its expected economic consequences this year.
In the context of the Russian-Ukrainian war, it is important to emphasise the uncertainty, as the time to end the fights and the extent of the damage are not yet apparent. What is certain now is that, as a result of the events, supply chains will be damaged and energy and food prices will also rise, having an inflationary effect. At the same time, the conflict is not expected to completely halt economic growth, given the solid foundations of the economy, high employment and investment rates.
Due to the effects of the war, we have revised our inflation forecast and modified upwards, thus we expect an inflation of 9.3 this year compared to last year’s 5.1, and a price increase of 6.4 next year. As a result, real wage growth may be lower than previously expected. However, taking into account that we expect average wages to rise by an average of 13.8 percent this year and 11.2 percent next year, real wage growth could still be positive at 4.1 percent and 4.5 percent, respectively. Due to rising real wages and government transfers, consumption may increase substantially, albeit to a lesser extent than previously expected: by 3.9 percent in 2022 and by 3.8 percent in 2023. So, this year, household consumption will be the main driver of economic growth.
Due to the uncertain economic situation, the volume of investments may also increase to a slightly lesser extent than previously expected, but they can appreciably expand by 6.0 percent this year and by 5.7 percent next year.
Foreign trade is expected to slow down economic growth in 2022 and to accelerate in 2023. The braking effect of 2022 is amplified by the effects of war. The volume of exports may increase by 4.6 percent in 2022 and that of imports by 5.1 percent, while they may increase by 5.9 percent and 4.7 percent in 2023, respectively. At the same time, the increase in the price of energy imported by Hungary in significant quantities will result in a deterioration of the foreign trade balance.
The labour market situation may remain favourable, at least for employees. Employment may remain high, while the unemployment rate may be below 4 percent, that is, the economy may still be characterised by labour shortages. High employment can be supported by a high level of investment. The Russian-Ukrainian war affects employment in two directions: unfavourable macroeconomic effects are holding back employment growth, while the location of refugees remaining in Hungary may somewhat alleviate labour shortages.
Monetary policy has recently become tighter to control rising inflation, with rising base rate and one-week deposit rate. The one-week deposit rate is still expected to be the tool for the central bank to react flexibly to the rapidly changing market situation, while the base rate is expected to change less frequently, no more than once a month. At present, the level of the base rate lags behind the one-week deposit rate, so further tightening is expected here; its peak might be above 7 percent, and its decline is expected to parallel with the moderation of inflation. The central bank is expected to reach its inflation target after 2023.
Further reducing the increased deficit due to the coronavirus is an important task in fiscal policy. This process must also be continued in the current war situation, mainly by postponing government spending that does not support long-term growth or improve its competitiveness. Taking all this into account, the budget deficit as a share of GDP might be 4.2 percent in 2022 and 3.2 percent in 2023. This might lead to a gradual decline in government debt as a share of GDP: from 78.2 percent at the end of 2021 to 67.7 percent by the end of 2023.