Good fiscal data, combined with a cooling economy

HUNGARY - In Brief 06 Oct 2021 by Istvan Racz

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We have got somewhat mixed feelings, having seen the most recent macro data releases.On the one hand, the general government deficit by Eurostat's ESA-2010 methodology, i.e. the main policy indicator on fiscal balance, was an excellent 4.2% of GDP in H1, 0.5%-point below the corresponding data for the same period of last year. It has been clear for a while that fiscal consolidation is running ahead of plan, and yes, the H1 actual was substantially better than what the annual deficit target of 7.5% of GDP would have suggested. Anyone coming to the idea that fiscal affairs may have some seasonality, which would predict a much weaker second-half result, is following the wrong path, we would hurry to say. The only such seasonality is that quite often, decision-makers realise around November that, oops, we are much better again than the annual plan, so let us find out some intelligent ways to spend large sums of money before year-end, to make the actual deficit resemble the target, or maybe something just smaller than that. This will quite likely be the case towards the end of this year as well. But no problem at all, from the point of view of fiscal vulnerability, as the much-better-than-plan fiscal trend will provide the government with ample room to carry out its massive pre-election give-aways, and to withstand pressures like the one just showing up on the European gas market, which is quite a serious one to say the least.(By the way, Hungary just signed a 15-year gas supply contract with Russia, to buy 4.5bn cm of natural gas annually, i.e. the bulk of its usual consumption, a few weeks ago. Pricing and the price formula is kept highly confidential, but the contract is...