Hungary remains without options to stimulate economic growth. It can no longer count on the devaluation of the forint because the imports reached 70% of GDP. The central bank will have to decrease the interest. And the Polish central bank will do the same. But there the economy grows healthy

The governor of the Central Bank of Hungary, Mihály Varga, a trusted man of Prime Minister Viktor Orban, explained that the Hungarian economy has dropped seven times in the last 12 quarters, which happened only during the 2009 crisis. Cheap with almost 27%, a Hungarian Secretary of State recently said. The politician also identified the source of «evil». According to him, the rapid price increases from the beginning of the year were due to the multinational retailers who take advantage of the «excessive profit margins». As examples, he mentioned the dish soap, the laundry detergent and the shower gel, to which the retail margins exceed 30%. For the Hungarians, the news with the cheapness should be a good one. However, in the statistical data things look different. In July, inflation was above expectations, of 4.3%, far beyond the target of 3%, and was based on high prices of food, energy and services. Due to the inflationary pressures, but also the geopolitical uncertainties in the region and in the world, the Hungarian Central Bank maintained the reference interest for the highest level in the European Union last month. It was a decision made from caution. Also, the governor of the institution, Mihály Varga, former minister and a trusted man of Prime Minister Viktor Orban, warned of the budget risks, who overlap over a prolonged economic weakness. The last announcement made by the Minister of Economy Márton Nagy gives justice to the banker-prime minister and puts additional salt on a painful wound: this year's budget deficit will be greater than anticipated, and the weaker economic growth than in the last scenario, and the pessimist. Thus, instead of a budget deficit of 4.1% of GDP, the officially agreed target, Hungary will have a deficit of 4.5% of GDP, contributing, among others, pre-electoral expenses. Some analysts believe that the indicator can go higher, to 5% of GDP. And the economic growth will not be 1%, an estimation of the government even freshly reduced from 2.5%, but 0.7%. Minister Nagy explained and who is the culprit for the economic advance. It is about slowing the European economy. What will the central bank do in these conditions, so that the Hungarian economy does not fall into a vicious circle in which the weak growth feeds the deficit and vice versa? Analysts say that the institution will most likely reduce interest by the end of the year. Also, Minister Nagy told Reuters that Hungary will keep confidence of the rating markets and agencies, which have under supervision the qualification that recommends the country for investments. Minister Orban has hoped that accelerating economic growth will smoothed his way to a new term in next year's elections when, analysts say, will face the strongest opposition in the last decade. He tries to attract voters with high tax reductions for families, cheap loans for those who buy for the first time and with pension increases that counterbalance the effects of stubborn inflation, expected to reach an average of 4.7% this year. Inflation remains «public enemy,» Nagy said. «We do not want to risk the confidence of investors and, of course, we do not want to risk the rating of Hungary. We are not stupid in this sense,» said the politician for Reuters. On another occasion, at an economic summit organized in Veszprém, the politician promised the companies massive discounts. Also there, the governor of the Central Bank, Mihály Varga, explained that the Hungarian economy has dropped seven times in the last 12 quarters, which happened until during the 2009 crisis. «Since imports represent 70% of GDP, the stability of the driving course is vital,» said Varga. The share of imports in GDP would explain the great inflation in Hungary. In addition, the forint is known as a prone to depreciation currency. In Poland, the largest economy in the region, the Central Bank reduced this week the monetary policy interest by 25 basic points, to 4.75%, given that the impetus given by the withdrawal of inflation to 2.8% in August weighed more than the budget risks. This year's decreases total 100 percentage points. «The economic growth is solid, but the economy does not overheat and does not cause additional inflationary pressures,» says Economists from ING. The decision of the Government to extend the measures to freeze energy prices up to the fourth quarter of this year. On the other hand, the estimation of budget deficit for 2025 was increased, from 6.3% of GDP to 6.9% of GDP. There are some analysts who think it is likely that the central bank will again reduce interest in November.
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