Hungarian economist: this is why the forint will continue to weaken

Viktor Zsiday, a well-known Hungarian economist, explained on his website why he thinks the Hungarian forint will continue to weaken. He thinks that if the government keeps utility price cuts going, worse could happen than the weak forint. Below you can read a summary of his article.

According to zsiday.hu, the Hungarian economy needs changes, but these will not be communicated as government restrictions. In a sarcastic post, he says the government will introduce a “special economic operation” like Russia is conducting a special military operation, Putin says.

Zsiday also says that when it comes to new metrics, people should focus on 2023, not 2022.

The government has calculated a budget deficit of 4pc for 2023. But this is not sustainable. First, the loss of the National Bank of Hungary will amount to more than 1 pc of GDP in 2022. Second, the growth of the Hungarian economy will probably be slower because of the war. The budget deficit will therefore be around 5.5-6.5 pc. Moreover, no one can calculate the loss generated by utility price cuts. But there will be significant losses if energy prices remain high, he wrote.

If energy prices remain high, the budget deficit could reach 8-9-10 pc of Hungarian GDP, an unsustainable figure. In addition, the all-time wildcard, EU financial resources, are highly uncertain.

If there is no compromise with the EU (= no money coming from Brussels) and utility price cuts persist with high energy prices, the government will need a “ special economic operation” worth 5% of GDP.

If there is a compromise, the government would only need to come up with “only” 500-1.5 trillion HUF, which is also an incredible sum. Previously, the government had introduced special taxes draining the banking, energy and communications sectors. However, currently these are in the hands of pro-government businessmen.

If there is no compromise, there will be a major austerity plan, just like in 1994 when the budget deficit was 8.4 pc.

Zsiday says the government will not be able to distribute this burden properly, so everyone will feel the consequences.

Without compromise, the Hungarian economy could experience an Argentinian/Turkish economic descent. This means a continually weakening forint, high inflation, and price caps that do more harm than good.