The immediate task in Hungary is firefighting, as a recession looms - chamber of industry chief

The importance of energy policy has grown up to the same level as monetary and fiscal policy, as high energy prices are a significant driving factor behind inflation and thus cause current account deficits and weaken the forint, said László Parragh.

The energy price shock, the depreciation of the forint, and the uncertain economic environment affect inflation as well, even though the market has not been able to keep the pace with the recurring demand in 2021, nor the exalted demand in 2022, and this started to fuel inflation. 

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Uncertainty for the next year is high. The President of the MKIK hopes that a recession can be avoided, but added that growth expectations are noticeably worsening. He emphasized that businesses need additional support in the following areas

• digitalization and robotization,
• green transition, energy transition and modernisation,
• access to alternative sources and capital, and
• stepping up export activity. 

Currently, as in most countries, there is a firefighting going on, which may lead to a technical recession, but even at best, a significant economic slowdown will certainly happen.

Energy procurement is one of the challenges that businesses face. Parragh said that there are large companies whose foresight has resulted in price not being a problem for them until the end of next year, but there are smaller companies where energy procurement is a daily challenge.

Within the manufacturing industry, it is mainly the sectors with products at the bottom of the production chain that are affected. The liquidity situation of Hungarian SMEs at the bottom of the supply chain could come under pressure from the new gas year (1 October), and the rise in energy prices could easily lead to a string of bankruptcies.

There is also a risk that the competitiveness of Hungarian SMEs in the supply chain could deteriorate in the short term, leading to their replacement. Loss of export market competitiveness could have serious longer-term consequences. Regarding possible corporate reactions to the energy crisis, László Parragh shared the following research results:

Since Friday morning, I have not been able to predict what will happen,

said Parragh referring to the credit market prospects and the central bank's emergency rate hike. He also remarked that in three to four months, Hungarian businesses will have to finance themselves at the highest cost in Europe.

Hungary has the highest inflation in the EU, the forint is the currency that weakened the most, and our FX reserves are extremely low.

Economic policy must decide whether it is pro-growth or anti-inflationary. The two cannot go together, even if neither is a good choice,

Parragh concluded.

Cover photo - Márton Mónus - Portfolio