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Macro-economics and how it impacts on HR – Hungary

Soaring inflation and slowing economic growth in a country that has recently had parliamentary elections.

Soaring inflation and slowing economic growth in post parliamentary elections Hungary

The Russian-Ukrainian war plays an important, but not exclusive role in the sharp slowdown in Hungarian economic growth and accelerating inflation. As a result of loose monetary and fiscal policy, Hungarian inflation was one of the highest in the region even before the Covid crisis, as was the almost continuous weakening of the national currency.

Inflation is likely to rise dramatically from May, when the price cap on fuel and unprocessed food is lifted and market prices will dominate in this area as well.  Inflation is expected to peak in July, with the Central Bank of Hungary expecting 11 percent by mid-summer in the worst-case scenario, and the fuel prices likely to increase by 14-28% on average for the year.

At the same time, the severe disruptions to supply chains and a fall in demand due to the war and sanctions could result in severe drop in GDP growth by 1.5 to 2 percentage points, according to a forecast by GKI Economic Research Co. on 29 March 2022. Some think that a recession this year cannot be ruled out. The fall in exports to Russia and Ukraine is causing a loss of industrial production not only directly, but also as a result of a worldwide fall in exports, most visibly, perhaps, in the automotive sector.

According to union reports the wage increase varied between 8 percent and 17 to 18 percent, with real wage growth of more than 10 percent.

The general government deficit is huge, attempts to curb inflation are failing, and utility costs artificially kept low by the government are becoming untenable just as the one-sided, Russian orientation of Hungarian energy policy. Prime Minister Viktor Orban won re-election on 3 April and will be able to form his government with a two-thirds majority in Parliament. To tackle all these problems, a sharp tightening of fiscal and monetary policy in the course of the year will be necessary. As EU money is needed, reconciliation with the EU will also be needed.

Hedi Bozsonyik
Partner - Hungary
Bozsonyik-Fodor Legal