The Finance Ministry lowered its GDP forecast for this year

HUNGARY - In Brief 23 Jul 2020 by Istvan Racz

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Speaking in a radio interview on Kossuth Rádió this morning, finance minister Varga said this morning that GDP is likely to fall by an average 5% in volume terms this year, instead of the government's previous expectation of -3%, which now seems too optimistic. This would follow the previously announced +2% yoy for Q1 and a 10% yoy drop currently expected by the Ministry for Q2.By announcing this revision, the Ministry's forecast, which is essentially the government's official word on the matter, has come close to the existing market consensus. In June, a survey by Consensus Economics concluded with an average analyst expectation of -4.8% (with a range from -2.8% to -6.8%), and another one by Reuters resulted in an average -4.9% forecast (with a range from -3% to -6.8%). Of course, the two surveys' lists of respondents were overlapping. The EU most lately expected -7%, and our current forecast, released earlier this week, is -6%. The MNB, as a lonely outlier, is predicting positive 0.3-2% growth in these days, but that is widely regarded as a product of wishful thinking, rather than of rigorous analysis.There is no sign whatsoever coming out of the Finance Ministry that its change of view on growth prospects should lead to any immediate change of fiscal policy, and we expect none to surface in the coming days. However, it is notable that the government budget for 2021, the outlines of which were approved by parliament not long ago, was still built on the -3% GDP GDP forecast as a base-year number. The difference between the two forecasts should mean a 0.6-0.8% of GDP difference in government revenues and the deficit next year. The approved deficit target for 2021 is 2....