How does the shutdown of the Paks nuclear power plant affect the Hungarian economy?
Due to cooling problems at the Paks nuclear power plant, a complete shutdown is expected, which will have an impact on the Hungarian economy. The plant’s contribution to GDP is approximately 0.5 percent, so the loss of production itself will not cause significant growth problems. However, replacing the lost capacity with imports could worsen the external balance, and inflation could increase by more than 1 percentage point due to rising wholesale electricity prices. The government is encouraging economic actors to reduce consumption, as this would reduce dependence on imports. The adaptation to the market is expected to have a painful impact on economic performance.
Due to cooling problems, the Paks nuclear power plant has become virtually certain to shut down completely, which will have a significant impact on the Hungarian economy through multiple channels. The plant’s direct contribution to GDP is approximately 0.5%, so the impact of its closure on growth is limited. However, replacing the lost capacity with imports could negatively affect the external balance by as much as 1% of GDP, while rising wholesale electricity prices could also increase inflation by more than 1 percentage point. The government is no longer focusing on completely replacing imports, but rather encouraging economic actors to reduce consumption, as such a high level of import dependence carries significant risks for supply security. This quantitative adjustment could be the most painful for economic performance.
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