PM Orbán, minister Varga pessimistic about Covid-19 impact, see need for new fiscal stimulus

HUNGARY - In Brief 11 Mar 2020 by Istvan Racz

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Over the past two days, PM Orbán and finance minister Varga made pessimistic statements about the possible impact of the coronavirus disease on the Euro Area and Hungary. Mr. Orbán said the government budgets for 2020-2021 will have to be reworked (for 2021, this can obviously mean amendments to preliminary plans only, of course), with a view to providing the economy with new fiscal stimulus, in response to the likely negative impact of the unfolding epidemic on domestic output.Mr. Varga said GDP growth may be somewhere between 3.7% and -0.3% according to various scenarios this year, depending on the severity of the Covid-19 impact. This is to be compared to a 3.5-4% growth potential should the disease disappear completely tomorrow. Key areas where the epidemic is likely to hit most are manufacturing and tourism. Mr. Varga said his ministry is currently working on extra fiscal measures and could practically announce a package next week. But it is most likely that the government will wait a bit more to get a clearer picture on the actual need as regards the size and nature of the required fiscal adjustment.Importantly, these announcements are suggesting that highest-level policy-makers see fiscal policy as the right area to make adjustment for Covid-19, fundamentally allowing the MNB to deal with the existing inflation problem. How much this will actually be the case is yet to be seen, but for now, this piece of news should be seen as positive for the forint.