The limitations of a two-speed economy
Overview:
Hungary has suffered from an extended period of weak growth. First, large fiscal and external balances needed to be corrected through a number of painful adjustment measures. Excessive reliance on FX-denominated loans was then exposed by the sharp weakening of the HUF against the Euro (and CHF). The economy is now growing again at a half-decent pace. However, positive readings for exports and industrial output paint only half the picture. Private consumption and fixed investment remain weak. A major achievement has been to turn successive large current account deficits into a surplus. Inflation seems to be moving towards its target. However, with household balance sheets weak, unemployment high and economic confidence low the recovery will take some time to regain more momentum and a broader base.