Hungary’s inflation rate is double the average for the European Union, and its economy is barely growing, increasing by just 0.6% this year and 0.5% last year. Its nationalist government has meddled too much in its economy.
Fearing it will lose the next election, Hungary’s government is increasing government handouts and subsidized loans, rather than doing what it should be doing, which is to deregulate and depoliticize its economy. (Hungary is now less pro-market than neighboring Romania and Slovakia, unlike in the past, where it was more pro-market and more prosperous than they were. Today, Hungary has a lower per capita income than Romania, and is on par with Slovakia).
“Hungarian Prime Minister Viktor Orban announced on Saturday a new cheap loan program for small and medium businesses at a fixed 3% interest rate, set to launch on Monday, as he seeks to fend off a surging opposition challenge,” reports Reuters.
“In power since 2010, the nationalist leader faces what analysts say could be his toughest election next year, with the economy stagnating and stubborn inflation preventing interest rate cuts by the central bank.The new loans follow a subsidized home loan program for first-time buyers introduced last month at below half the market rate. The central bank’s benchmark rate stands at 6.5%.”
“The new loan (for businesses) will be available … with a fixed 3% interest rate, free use, and a cap of 150 million forints ($454,250),” Orban said. He also indicated there might be potential employment-related tax cuts for businesses.
Hungary’s central bank said last week that government measures, such as public sector wage hikes, housing subsidies for government employees, and a subsidized mortgage scheme, could increase households’ net income by 1.5% of economic output in 2026.
“It also said the cheap housing loans would boost consumption growth and trigger a surge in lending. Housing prices have already risen sharply in the past weeks,” Reuters notes. “However, economists warn the pre-election spending poses fiscal risks, with some concerned that weak growth could prompt further largesse. OTP Bank analysts said in a note this week that the economy would grow just 0.6% this year, which could pick up to around 3% next year driven primarily by consumption, fuelled by the fiscal stimulus ahead of the election. But they said this could be temporary, and then the budget deficit – which could rise above 5% of economic output in 2026 – would have to be reined in.”
