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Impacts of fiscal adjustments in Western European countries on the Hungarian economy

Author

Listed:
  • Balázs Krusper

    () (Magyar Nemzeti Bank (central bank of Hungary))

  • Gábor Pellényi

    () (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

In the wake of the Greek debt crisis, concerns about the sustainability of public debt have intensified. As a result, from the summer of 2010 several euro area member states announced fiscal austerity measures. These adjustments have a significant impact on the economic outlook of the euro area and, indirectly, Hungary. Over the short term, the spending cuts will reduce demand and restrain inflation in the euro area, resulting in restricted export opportunities for the Hungarian economy. Fiscal adjustments in Western Europe cutting public expenditures by a total of 1 percent of GDP for a period of two years could lower the growth rate of the Hungarian economy by 0.2 percentage points each year. In the context of declining import prices and a downturn in domestic demand, inflation is expected to moderate, albeit to a negligible extent. Somewhat stronger effects should be expected if the debt crisis of the euro area’s peripheral countries escalates further, and the increasing domestic debt burden driven by rising risk premia undermine domestic demand more markedly over the short term.

Suggested Citation

  • Balázs Krusper & Gábor Pellényi, 2010. "Impacts of fiscal adjustments in Western European countries on the Hungarian economy," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 5(4), pages 17-23, December.
  • Handle: RePEc:mnb:bullet:v:5:y:2010:i:4:p:17-23
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    File URL: http://www.mnb.hu/letoltes/krusper-pellenyi-en.pdf
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    Citations

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    Cited by:

    1. Miroslav Klucik, 2015. "Fiscal Adjustment in Slovakia: Findings from a Medium-Scale Econometric Model," Working Papers Working Paper No. 1/2015, Council for Budget Responsibility.

    More about this item

    Keywords

    forecasting; fiscal policy; inflation; growth;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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