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Hungary's annual inflation by the end of the year will fall to 7-8 percent from 20.1 percent in June, enabling the economy to recover, Finance Minister Mihai Varga told Reuters.

In an interview with the agency, he pointed out that the decline in inflation is key to reducing the budget deficit, inflated by energy subsidies, pension growth and government debt servicing costs.

"By December for sure, but if we're lucky back in November, inflation will fall below 10 percent. I believe that in December inflation will be 7-8 percent," Varga said. "I am optimistic that the region has enough potential to overcome its inflation and energy problems. Central European countries may once again be the fastest growing economies in the EU."

The government expects the economy to grow by 1.5 percent this year, but next year to accelerate to 4 percent. Analysts warn that a collapse in consumption will reduce tax revenues and the deficit could exceed targets set by authorities if they do not take additional measures to curb spending.

Inflation slows in June, the EU and the euro area

According to Varga, however, it is still too early to take measures regarding state spending. "So far, there are no reasons for new measures. In September, we will review and, if necessary, take action. I would like to leave untouched the planned deficit of 3.9% of GDP, and next year to reduce it to 2.9%, "the minister said.