Page 32 - CE Outlook Regions 2022

accounting for 40% of output in the industry, will bear the brunt of
higher energy prices and the tight labour market.

2.3.2 External environment

Hungary has seen a massive deterioration of its trade balance in
the second half of the year. The trade surplus in the
January-October period was the lowest in 12 years as production
of industrial companies were negatively impacted by supply
constraints, forcing them to reduce production guidance.

The Hungarian manufacturing sector remains strongly integrated
into global value chains, making exports sensitive to supply
disruptions. As material shortages are expected to abate from
2022, exports are projected to remain dynamic despite slowing
global demand.

At the same time, strong domestic demand is forecast to fuel
imports, while higher global energy prices are set to worsen
Hungary’s terms of trade. The current account is thus forecast to
deteriorate in 2022, before improving again in 2023. International
tourism, once a key growth factor, will be unlikely to return to
pre-crisis levels before 2023-2024.

In the autumn report, the European Commission forecast the
current account deficit to widen from 1.1% of GDP in 2021 to
2.4%. The risks of a twin recession are on the horizon after a long
period, according to Hungarian think-tank Kopint Tarki.

2.3.3 Inflation and monetary policy

Hungary’s headline inflation hit a 14-year high in November at
7.5% and core inflation was the highest in 13 years at 5.3%,

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