Page 5 - GLNG Week 43 2022

GLNG COMMENTARY GLNG

months. bank (MNB) decided to pause the hikes at the
There are three key channels through which end of September, but put through fresh emer-
this fall in gas prices will benefit economies gency rate hikes in the middle of October, after
across Central and Eastern Europe (CEE), it realised it had not done enough to stop the rot.
according to Capital Economics. The regulator also said it would start providing
“First, it will reduce upward pressure on infla- foreign exchange reserves to finance energy
tion by limiting the extent to which household imports.
and business energy bills rise. Second, it will “Hungary’s central bank, as well as others in
(therefore) support economic activity by limit- the region, will take some comfort from the fall
ing the squeeze on household real incomes and in gas prices for improving the inflation outlook
business profitability,” says Nicholas Farr, an and reducing pressure on their currencies,” says
emerging Europe economist with Capital Eco- Farr.
nomics. “Third, by reversing some of the deteri- But the recent tumble in gas prices provides
oration in countries’ terms of trade and reducing only temporary relief, argues Capital Econom-
how much government support is needed to ics. Even after their tumble in the last few weeks,
soften the blow of high prices, it should restrict the prices for gas and power remain very high
any further deterioration of external and fiscal at record levels. At the same time, the inflation
positions.” caused by ballooning energy prices are being
The relief will be largest in the countries with kept high by various “second round” effects that
the biggest current account deficits, especially will be a lot more persistent.
Hungary and Turkey. Finally, even if the drop in prices and 100%
“Hungary is one of the most dependent in full tanks at the start of the heating season will
Europe on gas for its energy needs and Hungar- mitigate the energy crisis this year, the fact that
ian assets have come under significant pressure Nord Stream pipelines are now permanently
this year as energy prices have surged,” says Farr. offline means that refilling the tanks next year
Hungary’s central bank has scrambled to will be an even bigger challenge. The energy cri-
prop up the sinking forint with a series of emer- sis is unlikely to go away.w™
gency intra-meeting extreme rate hikes in an
effort to cap soaring inflation. But more recently
at the end of September the Hungarian national

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