Inflation and deficits may upset Hungary’s economy

Significance

Hungary’s inflation rate was the EU’s highest in spring 2021. Spending promises and tax cuts ahead of elections due by spring 2022 are widening the budget deficit. Prime Minister Viktor Orban has promised from early 2022 a total tax rebate for families with children, up to the average income tax paid in 2021.

Impacts

• Economic output will reach its 2019 pre-crisis level by the end of this year.
• The forint-euro exchange rate will go on a roller-coaster ride in coming months, the economic rebound on the one hand boosting appreciation.
• On the other hand, intensified conflicts between the EU and the Hungarian government will increase pressures towards depreciation.
• Perceptions of the country’s economic situation could play a role in the outcome of next year’s elections.