Hungary finance minister says inflation sensitive to global economic shocks By Reuters

© Reuters. Hungarian Finance Minister Mihaly Varga speaks during an interview with Reuters in Budapest, Hungary July 19, 2023. REUTERS/Krisztina Than/File photo

BUDAPEST (Reuters) – Hungary’s finance minister on Saturday warned against complacency despite a sharp fall in the European Union’s highest inflation rate, saying any new supply shock to the global economy could reignite price growth.

The comments by Finance Minister Mihaly Varga underscored a policy rift within Prime Minister Viktor Orban’s government, with the economy minister repeatedly calling for looser fiscal rules and a higher inflation target to drag the economy out of recession.

Hungary’s inflation, which scaled the European Union’s highest levels at 25% a year ago, eased to an annual rate of 5.5% in December, data showed last week.

The minister reiterated that the government estimates that prices will rise 5.2% in 2024 in Hungary.

“This level cannot yet be called low, and it has its dangers,” Varga told economic daily Vilaggazdasag.

“From this level any small global economic or other imbalance could push Hungarian inflation to an uncomfortable level.”

The surge in inflation pushed the economy into recession, forcing Orban’s government to cut its 2024 growth forecast to 3.6% at the end of last year.

However, Varga also cautioned against government overspending. He emphasized the need to keep the budget deficit low and to further cut government debt while working towards sustainable growth.

The government should not spend more on economic stimulus than it can afford, Varga said.

“Without balance, economic growth can only be illusory. This means, among many other things, that the state can only finance investments that promise a higher return than the investment.”

Hungary’s budget deficit has averaged nearly 7% of gross domestic product in the four years since the COVID-19 pandemic and would need to more than halve this year for Orban’s government to cut the shortfall to its target of 2.9% of GDP.

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