Economic crisis?

Today on the front page of one of the Hungarian dailies I read the following headline: "Promising economics indicators." What promising economic indicators? Didn’t I hear just yesterday from the mouth of László Békesi, former minister of finance in the Horn government, that there is a serious economic crisis in Hungary? Oh, yes,I did. And the day before? Lajos Bokros said the same thing. Yesterday afternoon in a political discussion on ATV I heard from Mária Schmidt, historian and head of the House of Terror and former advisor to Viktor Orbán, that in early 2002, in the last months of the Fidesz government, the Hungarian economy was in splendid shape while today there is an economic crisis. Schmidt is no economist, but at least one could expect from a historian a modicum of logical thinking and some basic knowledge of the country she lives in. Yet her political bias leads her to a totally false assessment of the economic situation. Six years ago the yearly growth of the GDP was about the same as it is now. The deficit was close to 10%, while now as a result of the austerity program, it is under 6%. Taxes, which according to Ms. Schmidt are unbearable, were actually higher in 2002.

Not that the Hungarian economy is in great shape, but one mustn’t exaggerate the current problems and distort history. Surely, Ms. Schmidt is simply parroting the words of economists whose assessment of the situation is perhaps a tad darker than the situation actually warrants. (Economics isn’t called the dismal science for nothing.) And then comes this headline about promising indicators.

So what are these promising indicators? For the first time since 1990 the value of Hungarian exports surpassed the value of imports. Here are some data points. In the first two months of 2004 Hungary imported 1782.2 billion forints worth of goods while it exported only 1684.7 billion. In 2008, during the same two months, Hungary imported 3118.7 billion forints worth of goods while it exported 3140.8 billion. By the way, note the growth of volume in both exports and imports. In year over year comparisons the value of exports grew by 20% while the value of imports grew by 16%.

Yesterday Ecostat announced that almost half of Hungarian small- and medium-sized companies believe that in the next quarter their income will increase and 38% believe that at worst it will remain stagnant. The number of pessimists, in comparison to earlier months, decreased by 13%. Large companies have also become more optimistic about their business prospects. Ecostat’s prognosis for this year’s GDP growth is between 2.5% and 3%. 

The deficit is again smaller than was projected. In March the Ministry of Finance predicted a deficit of 344.5 billion forints but in fact it was only 325.9 billion forints. The Ministry predicted for the first quarter a deficit of 526.6 billion but it came in at 508.1 billion. The first quarter deficit was 1.9 percent of the GDP, which was on target.

Experts cannot quite explain why, but it seems that orders have been ticking up, and therefore it is not surprising that the confidence of manufacturers has also grown. More and more smaller Hungarian companies whose owners in the past complained about being unable to export their goods have recently been getting foreign orders. And the multinationals (who are threatening to pull out of the Czech Republic and Poland and move east) seem relatively content with their prospects in Hungary. Apparently they were favorably impressed with what Ferenc Gyurcsány had to tell them yesterday at the meeting of the Hungarian Association of Multinational Companies. He promised only modest tax relief, but somehow he managed to convince them that they can trust him.

Another promising statistic: industrial production has grown by 9.8 percent in the first two months of the year in comparison to the same period in 2007. The newspaper analysis I read considered this "modest growth," but again let’s see some figures. In February 2004 industrial production expressed in billions of forints was 1265, in 2005–1223, in 2006–1439, in 2007–1649 and in 2008–1840.

These are very promising signs of economic recovery. But another necessary ingredient is internal peace. Given Hungary’s political situation this is highly unlikely. Another referendum is threatening the country, this time on truly ridiculous grounds. The demand is that the government promise not to invite private healthcare insurers for at least three years. Since the government is in the middle of scrapping the original provisions of the health care bill concerning private investment this referendum is superfluous. But that doesn’t not make the slightest difference to the "civil organizations" responsible for gathering half a million signatures in favor of holding such a referendum.

And transit strikes that didn’t manage to cripple the capital a few days ago will try again, this time for at least twenty-four hours on Friday. The City of Budapest is asking billions from the central government to avoid the strike, but János Veres today made it perfectly clear that the government has no intention of giving one cent more to the troubled BKV. Gaskó’s trade union at MÁV is still threatening with a new strike and, by the way, he is also behind the signature gathering for a new referendum. An interesting role for a trade union at the state railways!

Sort by:   newest | oldest | most voted
NWO
Guest
Eva- I am sorry to be, yet again, “chicken little”, but I think you are seeing too much good news than really exists. The recent spate of near term economic and fiscal news is encouraging, but only in the context of the dire situation in which Hungary finds itself. Exports have been strong for a while (the non-agricultural, non-construction private sector has contracted as much as other parts of the economy), and we can be very thankful that (1) there still remains a high level of foreign strategic investors in the country and (2) the Western European economy has held up better than many expected. I have said before on this site that the Government should be commended for the progress it has made on the budget imbalance. This is important, but it is a job that is far from complete. Moreover, long term maintaining a budget that is near balanced will require far deeper strucutral changes to the budget. There is only so much that can be done-as has been the case so far-by increasing revenues and making cuts but not changing the nature of the budget (i.e., huge levels of transfer payments from taxpayers to non-taxpayers). Nevertheless, Hungary… Read more »
NWO
Guest
Budapest, April 10, 2008 (MTI-ECONEWS) – The Organization for Economic Cooperation and Development (OECD) said in a report published on Thursday that Hungary needs to consolidate its public finances and make structural reforms in order to establish the conditions necessary for sustainable growth in the country. According to the OECD’s report, Reforms for Stability and Sustainable Growth, further budgetary consolidation and structural reform would immediately raise confidence in Hungary’s economy and make it possible for the National Bank of Hungary to make interest-rate cuts. The OECD report asserted that quick and effective implementation of budgetary consolidation and structural reform would also increase the chances that the government could make cuts in taxes and social contributions over the medium-term. The OECD report said that such consolidation and reform would serve to revitalize Hungary’s convergence program. The report maintained that Hungary’s political parties must set aside their ideological differences to provide unified support for budgetary consolidation and structural reform. The report said that resistance to structural reform has grown in Hungary since the country’s transition to a market economy in 1989. The OECD report deemed a deceleration in economic growth to be the price of necessary budgetary reforms. Hungary must also increase… Read more »
Adrian
Guest

NWO,
thanks for all the detailed and well argued posts. Unfortunately, I can’t put much credence in the statistics when they don’t tie in with experience on the ground.
I have seen estimates of the scale of the black/grey economy in Hungary between 18-30%. Without knowing any econometrics, the arithmetic alone would suggest that there is huge room for error in the calculation of economic statistics. The amazingly low employment rate for example, has that been adjusted for all the people who are working and not declaring it, and by how much, and how was the adjustment estimated?
Most teachers have two jobs, and most I suggest are not declaring the second income. It is not possible to support a car/detached house/two holiday lifestyle on a teachers’ official salary. Doctors are even worse, I know an honest doctor and his standard of living is pitiful compared his free-riding colleagues. Lets not even start to think about construction, which must be the most under-reported occupation in Hungary.
The quality of built infrastructure, the volume of retail trade, the widescale ownership of high value consumer goods all belie the tale told by the statistics.

NWO
Guest
I suppose everyone’s definition of “crisis” is subjective. I certainly do not subscribe to FIDESZ’s definition or their solution to this crisis. That would only make the situation far worse if they were to follow through on their “right wing socialism.” I think, however, if one judges Hungary’s current economic position today, “crisis” is a fairly apt word. Nevertheless, look at the following current statistics (source: Portfolio.hu): Hungary: Inflation (%): Feb 08 6.9 GDP (%): Q4 07 0.8 FDI (mEUR): Q1 07 1,102 Base rate (%): Current 8.00 Poland: Inflation (%): Sept 07 2.3 GDP (%): Q2 07 6.7 FDI (mEUR): Q1-Q3 07 1,100 Base rate (%): Current 4.75 The Czech Republic Inflation (%): Sept 07 2.8 GDP (%): Q2 07 6.0 FDI (mEUR): Q1-Q2 07 2,420 Base rate (%): Current 3.25 Slovak Republic Inflation (%): Oct 07 3.3 GDP (%): Q3 07 9.4 FDI (mEUR): – – Base rate (%): Current 4.25 Then look at the Hungarian forint yield curve. One year HUF sovereign notes are yielding 8.92% (92 basis points over the base rate). High interest rates, very low growth is a recipe for very harsh economic conditions. In many sectors of the economy, the economy feels like… Read more »
Viking
Guest
I will not claim any knowledge about financial politics, but I wrote a couple of days ago about coming back to Hungary last Friday and being met with this “crisis-mode” going on. I actually believe, without any proof of course, that part of this “crisis-mode” is an attempt, obviously successful so far, by the Govt to handle the outcome of the referendum. If they can get the whole country to think that there is a financial/economic crises, right or wrong, they can easier get Parliamentarian backing for some reforms. The Govt need to get the message to the masses that the Govt were correct in trying to impose some austerity measures. This will take away some support from Fidesz 3-6 months later. On the other hand – I can just wonder why does a lot of retail companies come to Hungary, like Aldi now? Where do they expect people to have money to buy all these products that need to be sold to finance these big investment? The answer is probably like the first CEO for Pannon said when they opened shop in Hungary many years ago – “Do not look at the official figures for the economy. There will… Read more »
Varangy
Guest

****That would only make the situation far worse if they were to follow through on their “right wing socialism.”****
@NWO
Very, very true.
****I don’t think so. As long as there is economic growth, as long as the deficit goes down, as long as the inflation is not too high, there is no crisis.****
@everyone
Not nearly so simple. Doing a quick Ctrl-f, I see no one has mentioned the paramount problem with the (future) Hungarian economy.
Namely, Hungary’s looming demographic problems (partially fueled by Hungary’s insanely high addiction to abortion.)
http://www.nationmaster.com/graph/hea_abo_percap-health-abortions-per-capita
Hungarian demography is incisively addressed by Edward Hughes here:
http://hungaryeconomywatch.blogspot.com/2007/12/just-why-is-hungary-so-different-from.html

NWO
Guest

Varangy
I mentioned the “rapidly ageing population” in my first post here. I think the demographic crisis is a fundamental problem that will force the country to consider significant immigration (which I support enthusiastically). The country´s high abortion rate, however, is I believe a symptom of perhaps other larger underlying social problems in Hu.

Viking
Guest

Well,
Hungary has always before solved its “demographic” problem by importing people, like after the Turks.
It is just that politicians like Viktor Orban is against it.
But is not the real beef Varangy has, like the Zionists in Israel (with the growth-rate of the non-jewish population), that the “Hungarians” are getting fewer and the Romas are getting more?

wpDiscuz