Relatively orderly fiscal deficit reported for H1 2020

HUNGARY - In Brief 05 Oct 2020 by Istvan Racz

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The main fiscal deficit ratio, put together by the EU's ESA-2010 methodology, came out as 9.1% of GDP for Q2 and 5.3% of GDP for H1 2020. Revenue went down by 5.5% yoy, whereas expenditure rose by 14% yoy in Q2, the corresponding figures being -1.4% yoy for revenue and +12.6% yoy for expenditure in H1.All this is quite ugly if assessed against the original annual deficit target of 1% of GDP, of course. But in the brave new world of Covid-19, these numbers look much better. They suggest that the most recent amendment of the government's annual deficit target of 7-9% of GDP was quite realistic, taking into account, in addition to the existing fiscal trends, also the risk that the Covid situation may easily turn for the worse in the rest of this year, which would most certainly have a negative feedback on the budget.For now, at the level of facts, we have a new retail sales figure for August: +1.2% yoy, a bit of improvement from the +0.6% yoy reported for July and a bit more from June's -1.9% yoy. Indeed, the recovery has been happening at a snail's speed so far. But at least it has been happening, positively for VAT and excise taxes, the most important source of tax revenue for the government budget.