Page 52 - CE Outlook Regions 2023

increase of 14% for skilled workers and 16% for unskilled workers will
only keep real wages flat after years of double-digit expansion.

First-half growth of 9.6% in retail sales was lifted by the pre-election
stimulus, including a one-time income tax refund to families with
children, an income tax cut for workers under age 25, the
re-introduction of the 13th monthly pension and administrative wage
increases. As the year advanced, households have begun to adjust
their spending patterns to higher inflation, the impact of fiscal
tightening, and the phase-out of energy subsidies in the summer.

Food sales contracted for the fifth straight month in October as food
inflation was the highest in Hungary among EU countries. Price caps on
food staples have been ineffective in tackling overall inflation as
retailers spread losses and raised the price of non-capped products.
The 4% windfall tax levied on the largest food retailers had the same
impact. In November food prices rose at 43.8% y/y in November with
egg prices jumping 103%, bread by 82% and milk products by 79%.

It was only recorded fuel sales that kept the sector’s sales in positive
territory in the autumn months due to the regulated prices. After major
supply shortages in the first days of December, the government phased
out the HUF480/litre price cap on December 8, pushing up prices by
30-40%, which will likely trigger a fall in retail sales in the first half of
2023 in addition to lifting the headline CPI by 2-2.5pp.

Households remain partially shielded from rising energy prices and
financing costs through administrative caps on residential energy prices
and mortgage rates.

3.3.2 Banks

As in the past, the financial sector seemed an obvious target for the
government to raise funds to fill the gap in the budget left by the
pre-election splurge. The Banking Association estimated the total levy
on the sector to have reached HUF500bn (€1.23bn) in 2022. The
government decree on windfall taxes in June requires banks to pay a
special tax on net revenue of 10% in 2022, a HUF200bn-250bn levy.
The tax rate will go down to 8% in 2023. Banks will pay HUF50bn in
financial transaction duty this year and the levy to state deposit fund
OBA after the bankruptcy of Sberbank cost them HUF73.5 bn. The
freeze on interest payments for variable-rate mortgage loans has cost
lenders HUF190bn.

To mitigate the impact of rising interest rates, the government extended
the mortgage rate freeze for some 330,000 families holding some
HUF330bn in outstanding variable-rate home loans. These borrowers
are expected to save HUF350,000 over an 18-month period. The price
cap was recently extended to five-year mortgage loans until June 2023
as well. The government also capped lending rates for some 60,000
SMEs, which is expected to hit banks with an additional HUF80bn.

As a result, the non-consolidated after-tax profit of Hungarian banks fell
12.4% y/y to HUF562bn (€1.37bn) in Q1-Q3. The lending stock rose

52 CE Outlook 2023 www.intellinews.com