The economies of the countries of the Central and Eastern European region have moved very similarly in recent decades. In addition to the coronavirus epidemic and the Russian-Ukrainian war, the current inflationary environment also has long-term effects. Unemployment dropped to a very low level, which was accompanied by an increase in labor costs, Viktor Zsiday said at the Thursday event of Hold Fund Management.
In such a situation, an orthodox economic policy tries to keep its currency strong in order to at least not import further inflation, and tries to keep wage growth under control, for which it has many means. On the other hand, the unorthodox economic policy promotes credit with low interest rates and devalues its currency in order to win export markets with it. The latter is associated with high wage growth and exploding inflation, the investment expert pointed out.
The question is which path will Hungarian economic policy choose
– emphasized Zsiday.
He added: he is afraid that the Hungarian leadership has a tendency towards an unorthodox solution. At the same time, if we receive external support, for example in the form of EU funds, we can maneuver between orthodox and unorthodox models. In this case, annual inflation of 5-8 percent and a weakening of the forint by 1-3 percent may occur. However, if we cannot come to an agreement with the EU in the long term, then we will be more and more steered towards the unorthodox path, in which “there is always the risk of an accident”, that inflation will explode and the population will start to withdraw their money. This scenario can be dragged out for a surprisingly long time, but it usually does not have a good ending, emphasized Viktor Zsiday.
Cover image source: Ákos Stiller via Portfolio
