Hungary's government is planning to launch further stimulus measures in September as it is facing a widening deficit and the deepest recession since 2009.

The threat of the pandemic is still here, which is holding back the economy and that is why the government is working on more stimulus measures, Finance Minister Mihaly Varga wrote in his Facebook page. 

His comments chime with Prime Minister Viktor Orban's announcement on Friday. In his regular interview with state radio the prime minister said he discussed economic policy measures with ministers and experts and asked them to combine individual proposals drafted over the past several weeks and come up with a “logical growth plan containing dozens of measures” by mid-September. The government is planning to roll out a two-year economic plan from the fourth quarter.

Policies until now had focused on saving jobs, but more measures are needed, he opined.

The good news is that unemployment is falling and it is easier to get a job, wrote Varga in his Facebook post on Wednesday. For the first time in six months, the number of registered jobseekers fell by 10,500 to 365,755 in July, but that still represents a 47% y/y growth. 

Before the crisis Hungary faced a massive labour shortage and record low unemployment of 3%, which has doubled since.

This week may be a turning point as Hungarian fiscal and monetary decision makers are coming to grips with realities. On Monday, the finance ministry said that it expects a budget deficit of up to 9%, the biggest gap since 2008, as the pandemic and tax cuts left a HUF1.4 trillion (€3.95bn) hole in the budget. Hungary's budget gap at the end of July was already above 4% of GDP, compared with its initial 1% target, which later was revised to 3.7%. 

On Tuesday, the Monetary Council said it is revising its growth forecast next month. Analysts said the Hungarian National Bank's (MNB's) projection of 0.3-2% growth was way out of touch with reality to the extent that it was damaging the central bank's credibility.

Economists are also expecting the cabinet to slash GDP projections for this year as H1 data showed the economy contracting 6.1%. The cabinet official forecast is a 3% drop in output, Varga has hinted that a 5% contraction is more likely.

It came as no surprise after the revision of the deficit targets that the Government Debt Management Agency (AKK) said that it is updating its 2020 financing plan for the fourth time this year due to the increased funding requirement on the part of the government. The cash-flow based deficit of the central government could reach HUF3.6 trillion at the end of the year, up by HUF1.7 trillion from the last revision.

More bad news came on Wednesday for the government from an independent think tank. According to the forecast published by economists of Policy Agenda, Hungary's GDP may fall by 8-9% this year and economic output could reach pre-crisis levels only by 2022. 

Industrial production may plunge 12-15% and the fall in construction output could be around the same level.

On the positive side, Hungary's finance ministry said that data from online cash registers show Hungary's retail and catering sectors recovering from the crisis since the end of the emergency rules and the lockdown in June.