The forint's weak trend continued on two events yesterday

HUNGARY - In Brief 03 Sep 2020 by Istvan Racz

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The forint's weak trend, which started with the Finance Ministry's sharp upward revision of this year's fiscal deficit forecast and then continued due to the MNB effectively tolerating and even actively assisting fiscal loosening, went further yesterday, EURHUF moving to the upper half of the 355-360 range.There were at least two events which had a supporting influence on this development: first, news on a substantial deterioration of the Covid-19 situation in Hungary over the past week or so, and second, Politico's article from Brussels that the Hungarian government is reportedly preparing to block EU borrowing for the Next Generation instrument unless the EU gives up plans to introduce a rule-of-law mechanism attached to the 2021-2027 budget or at least waters it down to a level that effectively could not prove harmful for Hungary any more.The first one of these, the Covid-19 issue, appears to have negative consequences on domestic economic performance for the rest of the year and perhaps even for longer term. The second one suggests that a new conflict between Hungary and the EU is in the making or the existing conflicts are threatening to worsen.Our first reaction to the Covid-19 issue is that yes, both the daily number of new infections and the stock number of active cases have risen to above their peak levels recorded in April and May. All that was the direct result of international tourism during the summer months and the loosening of people's behaviour regarding the implementation of safety measures domestically. The problem had been visible from early August already but the deterioration accelerated spectacularly in the last week of the month. The good news in...