Fiscal data for H1 signify the need to tighten policy

HUNGARY - In Brief 24 Aug 2018 by Istvan Racz

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A few days ago, the MNB reported the general government's net financing requirement for Q2 at 2.2% of GDP, which implies 1.4% of GDP for the whole of H1. These figures are compiled according to ESA-2010, just as the general government balance, the main fiscal policy indicator for EU-members, but are not exactly the same by content. Should there be no difference between these two statistical categories for Q2, that would mean a H1 deficit of 2% of GDP. Of course, we will only know that significantly later, as the general government balance will be reported by the KSH only on October 2.At first glance, a 2% of GDP deficit figure for H1 could be seen as excellent, compared to the 2.4% of GDP annual target. But the H1 net financing requirement figures, which we use as a starting point, are not seasonally adjusted. In H1 2017, the general government had a surplus of 1.3% of GDP, which was followed by a 5.2% of GDP deficit in H2, in a great measure the result of election campaign policies. From the part of fiscal policy, this latter big deficit boosted the economy in H2 2017 and early this year.However, with a 2% of GDP fiscal deficit recorded in H1, the annual deficit target would allow only 2.8% of GDP for the H2 2018 fiscal deficit. No doubt this is really considerable, but far not as generous as the H2 2017 actual, when the deficit was almost twice as big. As a result, fiscal policy will most likely provide much less support to the economy in late 2018 and early 2019 than one year ago.