International economic trends in deteriorating global environment – consequences for Hungary

The COVID-19 pandemic has adversely affected all segments of the Hungarian economy. The aim of the study is to establish the depth of the epidemic’s imprint on the domestic economy and society and its impact on long-term sustainability. The first chapter of the research examines the evolution of the state of public finances and finds that the surge in general government-to-GDP ratios in 2020 declined in most EU Member States in 2021, but in many places the record high GDP growth played a greater role than the decline in nominal debt, and the growth of the GDP deflator also had a “positive” effect on the indicators. The second part of the study deals with the development of domestic corporate demographics and profitability in the period after the announcement of the epidemiological measures. It notes that, thanks to government subsidies, a wave of bankruptcies did not occur, and that corporate debt did not increase dramatically. However, in line with the performance of the economy, profitability deteriorated, but this, thanks to the favorable monetary policy in 2021, did not cause significant problems. The research continues with the examination of digitalization development, in which Hungary is significantly behind other EU Member States. For this reason, digital developments are no longer a growth potential in the way they were a decade ago, as overcoming the backlog no longer provides an advantage (as in Estonia), but failure to do so will surely put the economy at a disadvantage. There are burning problems not only in the field of government services, but also in the field of IT development of health, education. In the final part of the analysis, we assess the EU’s carbon neutrality and other environmental ambitions. Although the Commission’s intention to develop a green economy and society is clear, the majority of Member States, fearing negative economic impacts, prefer to soften EU plans. The Hungarian strategy, which places the expansion of nuclear energy and solar energy at the heart of the green transition, remains based on the assumption that the Russian (uranium import) and the Chinese relationship (solar panel import) can still be expected for quite some time, but its sustainability is highly questionable due to the Russian-Ukrainian war and the EU’s foreign economic policy towards China.

A summary of the study is available in English here.

Prepared for the Secretariat of the Fiscal Council
August 2022
Project leader:
Péter Vakhal
Rozália Bogó, Zoltán Matheika, Éva Palócz, Péter Vakhal