The Finance Ministry of Hungary announced that the European country’s government has boosted the 2023 budget deficit target to 5.2% of economic output from 3.9%, citing increasing spending on pensions, energy subsidies, and family subsidies.
Hungary’s economy is predicted to at best stagnate in 2023 as a result of the highest inflation rate in the European Union, which hit a high of over 25% in the first quarter.
Hungary’s economy is expected to reach over USD 263 billion by 2026. However, the strength of the recovery is uncertain due to the potential scarring of the economy from the prolonged crisis. In the second quarter of 2023, the volume of GDP contracted by 0.3%.
The government of Prime Minister Viktor Orban is working to revitalize lending and growth to put the economy back on an expansionary course before the scheduled European parliamentary elections in 2014.
In recent weeks, the government has increased its criticism of the central bank as the two parties have traded accusations of being too responsible for the inflation crisis.
The National Bank of Hungary (NBH), which reversed its emergency rate hikes in October 2022, lowered its one-day deposit rate by 100 basis points to 13% in the last week of September 2023 as inflation declined, but expressed a cautious tone regarding further easing.
According to Economic Development Minister Marton Nagy, higher central bank interest rates than anticipated inflation will impede the recovery.
Nagy’s ministry, which has been in discussions with the nation’s banks, urged commercial banks to establish a cap on interest rates on new loans for businesses and households below the 13% benchmark rate in a separate statement.
It stated that starting on October 9, the cap on new business loans should be established at 12% and the maximum interest rate on new loans for families at 8.5%.