In the past 1.5 years, a huge improvement has taken place in Hungary's external and internal deficits.
However, the price paid for this improvement includes a substantial drop in consumption, investments, and GDP. Corrective economic policy measures received positive international recognition and have considerably improved Hungary’s credibility .
The modest room for maneuvering in the new government's fiscal policy – perhaps amounting to about 1 or 1.5pct of GDP as presented in GKI’s March forecast – has been further reduced by the Greek crisis (to minimum levels after neglecting the potential consequences of the Greek situation).
After the serious mistakes made by the government in economic policy and communication at the beginning of June, even some smaller modification of this year's targets became impossible: the EU and financial markets expect that Hungary should insist on the 3.8pct general government deficit relative to GDP. Tightening, rather than loosening, has been placed on the agenda.
