Hungary and the world economic crisis

Hungarian politicians, both left and right, are predicting a grim near-term future for the Hungarian economy. Sometimes I think that the government may be overstating the case in order to have an easier time convincing the population as well as the opposition to cooperate in the economic restructuring necessary for future growth. Or it is equally plausible that they want to paint a very dark picture because, if the crisis is less severe than predicted, the population will be relieved and will think that after all Hungary has a government able to conquer towering economic difficulties. The curious thing is that no matter how bleak a picture the government paints, consumers keep on spending. Absolutely no sign of slowing down. Retailers expect a good Christmas.

Of course, there are already tangible signs of trouble. GE is letting one hundred workers go in Győr. In the same city Audi its closing its factory for a month. There was a demonstration against the temporary closing of the Audi factory, as if it mattered at all. Gordon Bajnai, minister of economics, predicted that in the next few weeks many thousands will lose their jobs. Last week, he mentioned 1,400. Yesterday he announced an additional 1,760. He added that in the next months the situation will get worse. He also mentioned that conditions will be most critical in the western regions where the multinational companies located.

What is the government trying to do under the circumstances? Some of the money received from the European Union will be used to save 100,000 jobs and to create an extra 20,000 in small companies. That sounds a bit extravagant to me. The plan at the moment is that if in one region too many factories close, the government will step in and declare the district a "disaster area" where they will try to keep factories open and reopen already closed ones.

The Christmas shoppers are not the only ones unphased by the grim predictions of Bajnai. The trade unions are not impressed either. As I mentioned earlier, the government wants to take away the thirteenth month pay of all government employees (close to 700,000), and the 4% increase in real wages promised earlier will be scrapped. The United Trade Unions of the Public Service Sector comprising 22 trade unions have been negotiating with the government, but they are getting nowhere. Thus,the decision was made to organize a huge demonstration for November 29. If further talks are unsatisfactory from the trade unions' point of view there will be a general strike starting January 12, 2009. I heard one union leader who is demanding an 18% raise. The head of the Hungarian Medical Association wants a 30% raise for people working in healthcare. If they stick to their demands, I'm afraid the strike is certain. How long it will last is another question entirely. If members of the trade unions show the same enthusiasm for the strike this time as they did earlier, when one strike after the other ended in total failure, they won't be picketing in the winter cold for long.

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Odin's lost eye
You say government’s sometimes paint the picture much blacker than it really is. The danger with this is that it becomes a self fulfilling prophecy because of lack of confidence etc. Hungary’s problem, providing Gyurcsány’ and Gordon Bajnai keeps their nerves is minimal compared to the problems of the USA. Professor you also say in your piece *** “The curious thing is that no matter how bleak a picture the government paints, consumers keep on spending. Absolutely no sign of slowing down. Retailers expect a good Christmas.” ***. I think you are a little bit wrong here. The local market this week was down to no more than a dozen stalls. This is most unusual for this time of year. The produce available was very limited and extremely pricey. An old friend of mine who sells in the market tells me that it is hardly worth the petrol to bring his goods to sell. His reason is that no one is buying anything. It seems that no one has in the money, and those which do have money are holding on to it. Around here I suspect many people are very worried about the falling value of the Hungarian forint… Read more »
Not appearing in “Hungary and the world economic crisis” above is the word inflation. According to a March issues of the blog Hungary Economy Watch “Hungary’s consumer prices rose in February by 1.1% month on month and by 6.9% year on year.” Moreover, “Hungarian inflation has now consistently exceeded the central bank 3 percent target since August 2006, heading upward under pressure from global food and energy prices, and following “own goal” inflation pressures due to the increase in state administered prices as the Hungarian government lifted utility bills and social security contributions in an attempt to reduce a record budget deficit.” Since the local and global crisis descended on Hungary with a vengeance several weeks ago, most likely inflation has slowed somewhat. Nevertheless, with ordinary Hungarian citizens’ buying power decreasing faster than their paychecks increase — coupled with job insecurity — it is difficult to imagine that most Hungarians will plunge into a Christmas buying frenzy. The rosy picture painted by retailers expecting a good Christmas may be a reverse psychology in analogy with the dark picture painted by the government — mentioned above. In this case, by retailers saying they expect a good Christmas, they hope that buyers… Read more »

There is a village in Hungary, “famous” for being one of the poorest of them all.
A few years ago the mayor got caught stealing what little public funds he could get his filthy hands on. Nothing unusual so far, except that he was tried and sentenced for it. The funny part is that he’s back, reelected as mayor.
This is a true story. Feel free to associate. Hint: Gyurcsany and IMF.
Let’s trust the same thieves with even more money. They will probably steal it and waste it and we’ll just end up another day older and deeper in debt.
Apparently Hungarians don’t like to take chances on new management, they prefer the same old, reliable crooks. That’s the Hungarian spirit, when things are bad, let’s make them worse: “Hadd lám Uramisten, mire megyünk ketten…” (Arany J.)

Eva Balogh

About inflation and my not mentioning of it. I didn’t mention it because this is the least of Hungary’s problems. Let me quote:
“The NBH said it now expected consumer prices to rise by 6.2 percent in 2008, by 3.1-3.4 percent in 2009 and 1.5-1.9 percent in 2010. In August, the NBH had predicted inflation of 6.3 percent this year, 4.1 percent in 2009 and 3.0 percent in 2010.”


Inflation is the increase in the volume of money and credit relative to available goods. However, deflation (which superficially resembles reduced inflation rates) is a contraction in the volume of money and credit relative to available goods. So then as recession evolves into depression (which is happening now) inflation rates can be “predicted” to be coming down — but, in fact, those trying to improve the public mood by rationalizing deflation (depression) as reduction in the inflation rates (“good news”) do not mention the accelerated decrase in the value of goods (!).
In this context — let’s call deflation negative pseudoinflation — “inflation” is not as trivial as it at first may seem to those preoccupied with the ongoing economic crisis focusing on plunging property values and; disappearance of capitol intended for credit. The inflation/deflation paradigm is part and parcel of it.

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I Think Hungary should be concerned with the economic restructuring, that is sure!!!