New forecast data in from finance minister Varga

HUNGARY - In Brief 28 Oct 2020 by Istvan Racz

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Finance minister Mihály Varga spoke publicly on three different occasions in recent days, including two conferences and his annual hearing by parliament's budget committee. What came out of his statements as really new was two pieces of forecast data. He now expects GDP growth at -6.4% this year (down from the previous -5.1% forecast, which the Ministry had been maintaining for about two months) and the main budget (general government) deficit at 8-9% of GDP (instead of the previous, but not very old 7-9% range). His explanation was the aggravating Covid situation, of course.The new GDP growth forecast is just very similar to the -6.7% we gave in our October report, so we obviously do not have an issue with it. On the budget deficit, we then predicted a deficit of 5.9% of GDP for 2020, which was based more on the ongoing trend than on policy. However, this latter one is truly in the hands of the finance minister. So, the announcement of 8-9% of GDP as his forecast must mean the intention to do more fiscal intervention in the rest of 2020, most likely to maintain the slow and fragile recovery that has been taking place since the lockdown-related collapse of Q2 this year. He gave away essentially nothing on the policy details this time; instead he spoke of the need to spend more than formerly expected directly on the fight against Covid and to spend more on the support of the economy between early March and the current time.