Macroeconomic and fiscal developments in 2021

In 2021 the global economic situation improved significantly, which was reflected in the Hungarian economic trends as well. But uncertainties still abound and the Russian attack on Ukraine made the prospects even more volatile.

Based on the GDP growth rates, the Hungarian economy was successful beyond expectations in 2021: the seasonally adjusted volume of GDP rose steadily and at a good pace in every quarter of the past year. On the other hand, the changes in the structure of growth serve as a warning against excessive optimism. In the second half of the year, the external trade of goods contributed to economic growth negatively. While in the last quarter the external trade of services could support GDP growth substantially, and the export of goods began to revive as well, the latter will be probably offset by the growth in the import of goods that may receive a boost from the record-sized government stimulus package at the start of 2022, aimed at household consumption. Also, the growth of investments has been losing steam in recent quarters, public investments are on a tailspin.

The attack on Ukraine by Russia elevated the level of uncertainties to a whole new level. The expected detrimental effects of the war have prompted the analysts to revise their growth forecasts downward in droves. Kopint-Tárki, so far, revised its annual GDP forecast for 2021 only by 1 percentage point, from 5% to 4%, with downward risks.

The fiscal deficit-to-GDP ratio was relatively high in 2021: it was the seventh highest within the EU, and it reached record levels in the first three months of 2022. During the rest of this year a very disciplined fiscal policy will be necessary, which may lead to further delays in the planned government investment projects, and also the government may be forced to reconsider the degree of market support regarding the prices of certain consumer goods. On the other hand, the deficit-to-GDP and the debt-to-GDP ratios will be favorably affected by the higher-than-expected nominal GDP due to the expected very high GDP deflator. Still, by the end of the year, the fiscal deficit is bound to reach at least HUF 4 trillion (and more likely, HUF 4.5 trillion), which will constitute 6.5-7 percent of GDP, even with the higher level of nominal GDP. Due to the steep rise in interest rates and yields, the cost of state debt financing will increase considerably.

At present, accelerating inflation poses the largest risk for the economy.

Download (in Hungarian): Makrogazdasági, államháztartási helyzetkép 2021

Secretariat of the Fiscal Council of Hungary. Contract number: KVT /7-1/2022
April 2022
Project leader:
Éva Palócz
Rozália Jehoda Bogó, Zoltán Matheika, Katalin Nagy, Éva Palócz, Péter Vakhal