Inflation in Hungary will peak at 27% next year, Economy Minister Marton Nagy forecast at a conference on December 15. This is the highest estimate by a government official so far, and could give Hungary the highest inflation in the Europe Union.

The incredible figures demonstrate the economic mismanagement of Viktor Orban's radical rightwing government before the flawed election this spring, which it won by boosting spending and pledging to keep Hungary out of the Ukraine war. Nevertheless the government's dominance of the media has allowed it to propogate the narrative that the country's economic problems are all due to the war and the European Union sanctions on Russia.

Inflation is expected to peak in January-February at 25-27%, the former MNB deputy governor said. This is largely due to the phase-out of fuel price caps earlier this month, which is expected to add 2-3pp to the headline data.

Inflation could average 15-16% in 2023. While inflation is now at its plateau or on a descending path in Europe, it is still on its way up in Hungary.

The soaring figures will force the government to rewrite the 2023 budget. The  budget was approved in July with ambitious targets. The cabinet targeted 5.2% GDP growth, a budget deficit of 4.1% and average annual inflation of 5.2%.

These fiscal forecasts have become outdated just months after approving the budget as economic conditions deteriorated and inflation skyrocketed. The government now targets growth of 1.5% from 5% in 2022.

The cabinet is expected to amend the 2023 budget by decree before the end of the year, bypassing parliament with its emergency powers. Prime Minister Viktor Orban has declared a "state of danger" in Hungary over the Ukraine war.

The Hungarian government now plans to reduce the budget deficit to 3.5% in 2023 from 4.9% this year, even as spending on energy costs is expected to reach HUF2.5 trillion (€6.1bn). 

According to Nagy, the budget would be balanced without energy subsidies. Energy bills are expected to rise to €17bn-18bn in 2023, around the same as this year, compared to €7bn in 2021."This is a tragedy", he was quoted as saying by local media.

Hungary's economy was stable when the energy crisis hit and it has become an issue of financing as the exchange rates worsened because of energy costs, he added.

Excluding the energy factor, the current account would be in balance. The deficit is set to widen to 8% of GDP this year.

Speaking about long-term outlooks, Nagy stressed that Europe’s competitiveness is at risk because energy prices are 5-6 times higher than in the United States. There is a risk of deindustrialisation, with companies moving out of the continent. The availability and cost of energy will become a more important factor than labour costs in attracting FDI investments, he added.