We will have the economic growth needed for the tax refund

According to Századvég's expectation, the economy may expand dynamically next year as well, by up to 5 percent. Expansionary fiscal policy can play a significant role in rapid growth. With the resumption of the economy on the labor market, the labor shortage may again become more and more significant, as a result of which wages may begin to rise substantially. At the same time, the real impact of this is reduced by the higher than previously expected inflation, to mitigate which the Magyar Nemzeti Bank (MNB) will predictably further tighten its monetary policy.

The volume of household consumption expenditures may increase by 3.7 percent in 2021 and by 5.3 percent in 2022. In 2021, the value of the indicator will be further worsened by the restrictions in force in the spring period, however, the improvement of the epidemic situation and the resumption of the economy, as well as the repeated improvement of the previously temporarily deteriorating income situation, will stimulate consumption.

The expansion of investments is estimated at 7.2 percent this year and 8.3 percent next year.

In addition to the weaker base period data of 2020, state investments (partly EU, partly provided from own resources) play a significant role in this. However, it is important to strive to ensure that the expected abundance of resources does not result in a further substantial increase in prices.

The volume of foreign trade decreased in 2020 due to the shutdowns in the spring of 2020 and the interruption of supply chains. Due to the low base, this year exports may increase by 11.9 percent, while imports may increase by 9.7 percent, while next year the expansion may be 6.3 percent and 5.7 percent, respectively.

The expansion of production capacity generated by the high volume of investments also plays a major role in the growth of the export volume. A faster increase in exports than imports results in an improvement in the balance of the foreign trade balance.

At the same time, an important question is how quickly international tourism can be rebuilt, since before the appearance of the coronavirus this sector generated significant export revenues, foreigners spent much more on their trips to Hungary than Hungarians did on their trips abroad.

Unemployment increased slightly as a result of the coronavirus, but with the restart of the economy and easing of restrictions, a significant number of workplaces were able to reopen, so employment can expand again.

As a result, the unemployment rate may again fall below 4 percent in 2022.

At the same time, in several sectors (for example, industry, construction, education, healthcare) there is again a labor shortage, and there will be a shortage of skilled labor. As a result of this and the state wage settlements, the wage increase in 2022 could be double-digit again, but for this the state must carry out the still necessary wage settlements in the affected areas.

Inflation may be around the top of the central bank's target range this year, while next year the rate of price increase may moderate, but at the same time it may still be above the target, at 3.5 percent. This year's higher inflation is partly caused by base effects, but the rise in food prices, the previous weakening of the forint, and the situation caused by the coronavirus also contribute. The rapid expansion of economic performance and the expansionary fiscal policy also drive inflation upwards, while the tightening of the MNB's monetary policy can curb it.

The budget deficit may amount to 7.9 percent of GDP this year, which may decrease to 6.1 percent next year, so the public debt-to-GDP ratio will decrease from 80.4 percent at the end of 2020 to 80.1 percent by the end of 2021 and 79.6 percent by the end of 2022 can be mitigated. In other words, despite the growing economy and rising incomes, due to the high deficit, the public debt as a percentage of GDP will only shrink at a slow pace.

source: Századvég Foundation / hirado.hu

Photo: István Mirkó / Hungarian Nation