If the balance in Hungary is not restored, the euro could easily reach 420-430 forints - analyst

After last year's inflation shock, a more moderate 4-5% price rise is expected this year and next, according to Dávid Németh, chief economist at K&H Bank. But this is not the inflation rate economists would like to see.

Hungary is a very energy-intensive economy, and until this energy need is reduced, we will remain vulnerable, the economist stressed. Another important lesson is that the lower the value added of the service sector in a country, the higher the increase in the price of services. This is now the case in Hungary, with higher inflation due to the rapid rise in service prices.

Dávid Németh believes that the budget deficit could be above 5% of GDP this year if the government does not take action. (The upwardly revised target is 4.5%.) With last year's budget deficit well above expectations (6.7%), Hungary has caught the attention of credit rating agencies. And they now expect the government to announce fiscal adjustment measures. If this does not happen, we could easily be downgraded.

According to Dávid Németh, there is absolutely no basis for Hungary's GDP per capita to reach 90% of the EU average by 2030. He forecasts that we will be at around 85% in 2033. But Poland, the Czech Republic and Romania have a good chance of getting close to the EU average. "The depreciating forint exchange rate has not brought economic convergence," he said, and believes the forint's weakening trend could return.

The global economy is in a delicate balance, but this could easily be upset. If we don't restore public finances and bring inflation down to the central bank's target level [3% +/- 1ppt] while the global economy is out of balance, next year we will be talking about why the euro is 420-430 again, he concluded.

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