Page 41 - CE Outlook Regions 2024

3.3 Real economy - Hungary
3.3.1 Retail
Hungarian households, impacted by Europe’s highest inflation and the steepest fall in real wages among OECD countries in Q1, significantly cut back consumption. Sales contracted in each month of 2023 and were down roughly 10% in the first 11 months, marking one of the deepest declines in Europe. The phase-out of fuel price caps in December 2022 led to a 20% decline in sales, but households also reduced spending on basic food staples, and shopping abroad also increased.
Eurostat’s data showed that consumption per capita adjusted to purchasing power parity was the second-lowest in Hungary among EU members in 2022. Actual individual consumption (AIC) level, a measure of the material welfare of households expressed in PPP, was 71% of the EU average, 2pp above Bulgaria.
The collapse of retail consumption caught the government off guard as VAT revenues plummeted. Proceeds are expected to miss estimates by 1.1-1.2% of GDP, which has undermined the deficit target. The government attempted to shift the blame for record inflation to foreign multinationals, accusing them of price gouging. The largest retailers faced mounting burdens. The windfall tax on companies with net sales over HUF100bn was raised from 2.7% to 4.1% in 2023. The government vowed to phase out the extra levy in 2024, but these measures will be in place in 2024 due to the dire straits of the budget. The cabinet introduced mandatory discounts on the largest retailers after rolling back price caps on a dozen food staples.
Real wages turned positive in September, but this is unlikely to change consumer behaviour in the short run, as the consumer confidence index remains at multi-year lows. Households will primarily reduce their debt and replenish their reserves before consumption starts to grow again.
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