Hungary recession: Surging inflation pushes Hungary to the brink of a technical recession
Hungary looked likely to head into a technical recession by the end of 2022 amid near three-decade high inflation and elevated interest rates.
Economists expected demand destruction brought on by surging food and fuel costs in Hungary to push the European nation into a prolonged economic crisis.
What can we expect from the Hungarian economy in 2023? Here we take a look at what factors are shaping the country’s economic health and the latest Hungary recession forecasts.
What is a recession?
A recession is a period of a widespread and lengthy downturn in economic growth. In technical terms, two consecutive quarters of negative gross domestic product (GDP) growth is considered a recession.
Key characteristics of recessions are increased job layoffs and unemployment. As economic growth slows and consumption of goods and services falls, companies resort to cost-cutting measures to minimise expenses.
Another characteristic is that recessions are felt broadly by an entire economy and are not confined to a sector. The chance of simultaneous recessions across economies has also occurred in the past.
According to the International Monetary Fund (IMF), most globally synchronised recession episodes have coincided with recessions in the US which was the world’s largest economy.
There are several factors that can induce recession. Elevated levels of inflation in the form of high energy prices are a relevant example for 2022. High energy prices lead to overall price increases for goods and services which can hurt demand.
High inflation can also trigger central banks to implement restrictive monetary and fiscal policies that can lead to recession.
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Hungarian economic growth history
GDP is the main metric used to measure the economic growth of a country. In Hungary, GDP data is published by the Hungarian Central Statistical Office on a quarterly basis.
For our study of Hungary’s recession history, we looked at economic data compiled by The World Bank.
Historical data showed that recent periods of an economic crisis in Hungary coincided with recessions that occurred after the global financial crisis of 2008 and the Covid-19 pandemic in 2020.
Data showed that Hungary's crisis was more severe in 2008-2009 than in 2020. Hungary’s annual GDP growth declined by 6.6% in 2009, compared to a decline of 4.5% in 2020.
The economic rebound from 2020 lows was stronger as Hungary’s GDP growth posted a 7.1% growth in 2021. In comparison, Hungary made a slow recovery post the 2008-2009 Hungary crisis as GDP growth for 2010 and 2011 came in at 1.1% and 1.9%, respectively.
Over the past three decades, Hungary has posted negative annual GDP growth on three occasions: 2009, 2012 and 2020.
The latest technical recession in Hungary occurred in the first and second quarters of 2020 as GDP growth declined by 0.5% and 14.4% respectively,, on a quarter-on-quarter basis.
More recently, Hungary’s economic growth has shown signs of weakening on the back of an energy supply crisis in Europe.
Quarter-on-quarter GDP growth came in at 1.6% in the first three months of 2022, slowing to 0.8% in the second quarter of the year.
The latest economic figures published by the Hungarian Central Statistical Office showed that the nation experienced negative GDP growth in the third quarter of 2022.
Is Hungary in a recession right now?
Quarterly-published GDP growth figures showed that Hungary was not in a recession, as of 27 December 2022.
Although fears of a Hungary economic crisis remained elevated throughout 2022 due to the challenging macroeconomic conditions brought on by the Russia-Ukraine war and global monetary tightening cycle.
On 1 December 2022, Hungary reported that GDP growth declined by 0.4% on a quarter-on-quarter basis in the third quarter of 2022. It was the first quarterly economic contraction posted since the second quarter of 2020.
The agriculture industry was the main contributor to economic decline – the sector contracted by 39.3% year-on-year and 5.7% quarter-on-quarter as a result of severe summer drought conditions.
A fall in economic activity in the entertainment, leisure and hospitality industries during the third quarter indicated a drop in discretionary demand amid rising expenses for consumers.
What was hurting Hungarian consumers most was a surge in prices of essential items like food, electricity and gas. Annual inflation rate came in at a 26-year high of 22.5% for November as year-on-year food prices increased 43.8% and fuel costs by over 65%.
Latest retail sales data showed that food retailing volumes fell 5.6% in October compared to a year ago.
“The last time food retailing showed a similarly bad performance was during the Great Recession in 2009. Consumers have been strongly adapting to the new reality of surging food prices,” said Peter Virovocz, senior economist at ING.
The weakness of the Hungarian forint in 2022 has not helped the Hungarian economy. The US dollar has surged over 16% year-to-date against the Hungarian forint (USD/HUF). The euro has increased by over 9% year-to-date against the Hungarian forint (EUR/HUF) despite a challenging year for the continental currency.
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As for Hungary’s monetary policy, the nation’s central bank Magyar Nemzeti Bank (MNB) has been on an aggressive rate hike path since June 2021.
Interest rates in Hungary have shot up to 13%, as of December 2022, from 0.6% since the start of the rate hike cycle.
Meanwhile, the unemployment rate remained at historically low levels at 3.6% in October 2022 compared to 3.8% in the same period a year ago.
At the time of writing, Hungary was not officially in a recession. However, poor economic data coming out of the central-European nation meant that a Hungary recession is a possibility.
Hungary recession forecast for 2023 and beyond
Following the quarterly GDP contraction reported in the September quarter, ING said in its Hungary economic outlook that the nation will see a “technical” recession as GDP growth is expected to fall in the last quarter of 2022 as well.
On a separate note of December, Virovocz of ING said that poor retail sales figures from October proved that the “picture regarding GDP growth has been clearly negative.” He added:
Meanwhile, Hungary’s central bank forecasted a gloomy outlook for its economy in a December 2022 report, saying:
The central bank expected Hungary’s GDP to grow by 4.5% to 5% in 2022 before slowing to grow at a pace of 0.5% to 1.5% in 2023. Inflation was expected to sustain and remain high at 15% to 19.5% in 2023.
As for the rate hike cycle, the Hungarian central bank reiterated its hawkish stance at its ultimate monetary policy meeting of 2022.
“It is necessary to maintain tight monetary conditions over a prolonged period, which will ensure that inflation expectations are anchored and the inflation target is achieved in a sustainable manner,” said the Magyar Nemzeti Bank on 20 December.
Finally, The Organisation for Economic Co-operation and Development (OECD) said in a report that GDP growth is expected to decline to 1.5% in 2023 from 6% in 2022. The agency said:
“The slowing of the economy in 2023 reflects the impact of high inflation and weaker external demand. Private consumption will hardly expand due to falling real disposable incomes. Exports are decelerating as export markets slow under the impact of high food and energy prices. Job creation will lose speed, contributing to higher unemployment and slower wage growth.”
When looking at Hungary's economic forecast, it’s important to remember that analysts’ predictions can be wrong. We encourage you to always conduct your due diligence by reading the latest news, conducting technical and fundamental analyses, and studying a wide range of economic commentary.
Remember, your decision to trade should depend on your attitude to risk, your expertise in the market, the spread of your portfolio, and how comfortable you feel about losing money. You should never trade more than you can afford to lose.
FAQs
Why is Hungary in recession?
At the time of writing on 27 December, Hungary was not officially in a recession. However, poor economic data coming out of the central-European nation meant that a Hungary recession is a possibility.
How long does a recession usually last?
The IMF said a typical recession in the US prior to 2007 lasted about 11 months.
How often do recessions happen?
The IMF said that there were 122 completed recessions in 21 advanced economies over the 1960–2007 period.
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