IMF says Hungary cannot avoid recession, expects stubborn inflation
The International Monetary Fund's (IMF) annual autumn economic forecast, the World Economic Outlook (WEO), was published on Tuesday, to coincide with the organisation's annual general meeting, which is being held this week in Marrakech, Morocco. The WEO once again features the latest macroeconomic forecasts for each of the organisation's member states.
Most strikingly, the GDP forecast for Hungary has been lowered. According to experts at the IMF, Hungary's gross domestic product could fall by 0.3% in 2023, and then grow by 3.1% next year. The latter figure is little different from the forecast published in the spring, but the 2023 estimate marks a substantial deterioration from the 0.5% growth expected in April.
In doing so, the organisation has effectively jointed the market consensus, as
there are hardly any analysts today who are confident of a positive annual GDP figure.
Contributing to this was the surprisingly weak second quarter data, which showed a protracted technical recession. On the surface the government remains confident that economic growth will be 1.5% this year, but there have been remarks by government officials in recent weeks suggesting that at least a contraction should be avoided. This too looks set to be a major challenge.
The IMF's forecast for this year's average annual inflation was unchanged, but the forecast for 2024 was revised up to 6.4% from the previously expected 5.2%. In other words, the IMF says there could be a serious risk that inflation will be stubborn, returning close to the central bank's target later than expected. The Fund's experts now expect
the annual CPI to remain above 5% in December 2024, after 8.2% in December this year.
The biggest achievement of the Hungarian economy in 2023 will be the improvement in the current account balance, helped not only by falling global energy prices but also by an adjustment of consumers. This means that after last year's energy crisis, consumers started to save and cut back on consumption this year. As a result, the IMF now projects hardly any C/A gap for this year, against its -4.6% estimate in April, while it expects a minor deterioration in 2024. (In any case, recent data make it more likely that the current account will be in surplus this year.)
The IMF has revised its labour market projections slightly, with unemployment expected to fall to 3.9% by the end of this year from 4.1% projected previously. The forecast for 2024 is 3.8%, similar to the spring estimate.
We have put together a table with the IMF's key estimates for Hungary made in April (top) and in October (middle), along with a table showing the key changes (bottom).
As you can see from the colouring, the IMF's GDP estimate was cut the most for this year, while the annual average inflation forecast was raised the sharpest for 2024 and the end-year CPI projection for 2023.
Cover photo: JHVEPhoto via Getty Images
