The volume of household consumption expenditure may increase by 3.3 percent in 2021, 7.4 percent in 2022, and 3.7 percent in 2023. Next year, the base effect (restrictive measures such as this spring are no longer expected), high employment, the expected substantial rise in real wages, which, in addition to the decrease in taxes posed on work, is also supported by labour shortages and the huge increase in the minimum wage, as well as significant government transfers (such as tax refund to families) will play a major role in growth.
Although the government has postponed some investments due to budget deficit reduction and capacity constraints in the construction industry, the start of the new EU budgetary cycle and the growing willingness of businesses to invest may boost investment by 8.8 percent this year, 6.4 percent next year, and 7.5 percent in 2023. Thus, the investment rate may remain persistently high, and business investments may provide improvement in exports later.
However, net exports can only have a positive impact on growth again from 2023: While its impact on growth was still positive in the first half of this year, it turned negative from the third quarter onwards due to strong domestic demand and manufacturing difficulties. With the recovery of supply chains and international tourism, a positive contribution to growth is expected in 2023.
Inflation has risen above 7 percent recently. This is largely due to international factors (rising oil prices and energy prices, disruptions to supply chains) and to a lesser extent to domestic factors (strong demand, weak forint exchange rate, rising excise duties on tobacco products). The rate of inflation may slowly become moderate over the next period: after 5.1 percent in 2021, it is expected to be 5.3 percent in 2022 and then it may be down to 3.7 percent in 2023. This means that the external environment, which is expected to stabilise, and tighter fiscal and monetary policies will be able to stabilise and moderate the rise in prices. The biggest risk to inflation is the incorporation of high past inflation into expectations and the development of international processes. With higher-than-usual but not historically high inflation in recent years, real wages can continue to rise by 5.7 percent in 2022, and by 6.7 percent in 2023, according to our estimates.
Due to deteriorating inflation data, the central bank began to tighten its monetary policy over the past six months, removing asset purchase programs from its unconventional toolbox, in addition to a series of small rate hikes. According to expectations, tightening may continue in the near future, but at a slower pace than before. Thus, monetary policy will be tighter than before, but the real interest rate will still remain negative in 2022, i.e., it will by no means be tight.
Fiscal policy has also changed tone: The Ministry of Finance has announced that the deficit planned for 2022 may be 1 percentage point lower than originally set at 4.94 percent in the Budget Act. This is to be welcomed, as the already relaunched economy does not require the same budgetary resources as before, and lower expenditures help to improve balance indicators (inflation, current account, budget balance). However, a 4.9 percent deficit cannot be considered too strict, which will only gradually decrease to maintain growth. According to estimations, the budget deficit may be 5.2 percent of GDP in 2022, and 3.5 percent of GDP in 2023, while government debt-to-GDP ratio may fall from 79.9 percent at the end of this year to 75.0 percent over the next two years.
According to expectations,