Exclusive: Hungary’s economy likely to shrink more than 3%, deficit goal ‘not carved in stone’ – finance minister

(C) Reuters. FILE PHOTO: Hungarian Finance Minister Mihaly Varga speaks during a business conference in Budapest

By Krisztina Than

BUDAPEST (Reuters) – Hungary’s economic contraction this year is likely to be deeper than the government’s projection last month for 3% and the current budget deficit goal of 3% per GDP is “not carved in stone”, Finance Minister Mihaly Varga told Reuters on Friday.

Varga said the government will revise its GDP and deficit projections at the end of April as the coronavirus pandemic is taking a bigger than expected economic toll on the Central European country.

“Our estimate for 3% recession was made in the second half of March and was based on the assumption that we can start coming out of the epidemic in the second quarter,” Varga said in an interview.

“We are analyzing the situation now, but the figure is likely to be weaker (than minus 3%).”

Referring to online data from over 202,000 cash machines in the retail sector, he said that in the past seven days sales volumes were at only 54% of the level for the same period a year ago, showing tax revenues will be substantially lower as well.

“If the economy was able to return (to normal) at the end of May or by June, then the recession would be 3% but we can see that this will be slower,” he added. Hungary’s economy grew by 4.9% last year.

Varga said he did not expect any measurable revenues from the tourism sector this year. He said the biggest short-term risk to the economy was how exports can restart given shipment difficulties and border closures.

“The question is which export products can actually make it from the pharma, auto and chemical sectors to our export markets, and whether demand can revive along with a build-up of supply,” Varga said.

He said the government wanted to keep the budget deficit below 3% of GDP but “it was not the end of the world” if it came in higher than that.

A Reuters poll of analysts this week found a consensus forecast for a budget deficit of 4.5% of GDP. When asked if this would be acceptable, Varga said:

“If the epidemic puts a brake on the economy for longer and the economy cannot restart, then I think yes.”

Varga also revealed the terms of a Chinese loan agreement which Hungary announced earlier on Friday to finance the construction of a rail link between Budapest and the Serbian capital Belgrade, saying the 20-year $1.855 billion loan carried an annual interest rate of 2.5% and an early repayment option.