Hungary extends loan moratorium as economy struggles to recover
Prime minister introduced the moratorium for companies and borrowers in March to help reduce the economic fallout from the pandemic
Hungary will extend a moratorium on loan repayments for some households and companies until the middle of 2021, as its finance minister warned the economy could struggle to grow next year unless a coronavirus vaccine is found.
Prime Minister Viktor Orban introduced the moratorium for all companies and private borrowers in March as one of his government’s key measures to help reduce the economic fallout from the pandemic. It was due to expire at the end of the year.
In a video posted on his official Facebook page on Saturday, Orban said the moratorium would be extended by six months for families with children, the retired, unemployed and those in public works programmes.
The extension until the middle of 2021 will also apply to companies that have seen revenues drop by at least 25%.
Orban also said loan contracts for all households and companies agreed before the pandemic could not be terminated for six months.
The moves come as the government prepares to announce more steps to try to revive growth, ater the economy plunged more than expected in the second quarter and prospects for a recovery next year have worsened.
The weak economic outlook could represent the biggest threat to nationalist Orban’s decadelong rule as he prepares to face parliamentary elections in the first half of 2022.
Meanwhile, the National Bank of Hungary (NBH) is likely to leave interest rates unchanged next Tuesday based on a Reuters poll of economists, with higher-than-expected inflation limiting room for further meaningful stimulus for the sagging economy.
All 14 analysts in a September 15-16 survey said the central bank would leave its base rate at 0.6% ater 30 basis points worth of cuts in June and July to shore up the economy hit by the COVID-19 pandemic.
Central bank sources told Reuters last week that Hungary’s recovery would be slower than previously expected and the bank was nearing its limits with tools to fuel the economy, which shrank by 13.6% in the second quarter.
Banks expect to incur hundreds of billions of forints in losses as the pandemic had reversed a steady improvement in loan books over the past years.
Ater a recent surge in new infections, Prime Minister Viktor Orban’s government is walking a tightrope between necessary restrictions and preventing further harm to the economy.
“The economy will bounce back easily from a very low base on an annual basis next year, however, it is not sure that we will reach preCOVID crisis levels by the end of next year,” said economist Eszter Gargyan at Citibank.
“The National Bank of Hungary cannot really do much more to stimulate the economy.”
Headline inflation hit 3.9% year-on-year in August, near the top of the bank’s 2% to 4% target range, while tax-adjusted core inflation, its preferred measure, rose to 4.2%.
Deputy Governor Barnabas Virag said last week that the pandemic had lited inflation and there was no room to lower the base rate further.
The central bank will publish new economic forecasts on Tuesday, including a likely sharp downgrade to its 2020 gross domestic product outlook. Economists polled by Reuters see a 5.5% fall this year, followed by a 4.7% rebound in 2021.
Inflation is seen edging down to 3.2% in the next two years from an eight-year-high of 3.5% projected for 2020.
“The NBH will rather focus on the inflation story, but just using words and not actions,”
ING economist Peter Virovacz said. Separately, Finance Minister Mihaly Varga said in an interview published on Saturday that if a coronavirus vaccine was not available by the middle of 2021 the economy might struggle to grow next year, based on a pessimistic scenario.
Under an optimistic scenario, the economy could grow by 4-5% if a vaccine was available in the second quarter, he told newspaper Magyar Nemzet.
A third scenario was for a protracted recovery with 3%-4% growth, also conditional on a vaccine being available, he added.
Hungary’s economy is expected to shrink by 5%-6% this year. Varga said the government was working on new stimulus measures that could include targeted tax cuts for crisis-hit sectors.
Ater a spike in new cases in recent weeks, Hungary reported 809 new coronavirus infections on Saturday, bringing the total to 16,920, with 675 deaths.
Under an optimistic scenario, the economy could grow by 4% to 5% next year if a vaccine is available in the second quarter, he said.
A third scenario is a protracted recovery with 3%-4% growth, but that is also conditional on a vaccine being available, he added.