Here is the new year, a good time to take a quick look at the Hungarian economic situation. After reading a few recent articles in the Hungarian papers dealing with the economy I am pleased to report that there seem to be some promising developments.
First and foremost, and this is really a surprise, it looks as if the deficit, instead of growing as many expected, actually decreased in the last quarter. The ministry of finance predicted a deficit of 992.4 billion for the year but because of the sluggish economy the government thought tax revenues would be lower than originally projected, leading to a larger deficit. Contrary to all expectations, as the title Népszabadság's article indicates: "No one would have believed it: the deficit is smaller than expected." The paper learned from "reliable sources" that tax revenues in December were 50-60 billion forints more than the ministry hoped for.
Another good piece of news is that the pace of retail store closures has slowed even though holiday sales were not robust. Stores are planning huge January clearance sales; apparently many consumers have waited to buy at discounted prices. According to analysts, however, the retail sector should recover more quickly than other areas of the economy. Their prognosis is based on trends. While in the first half of the year 41% more retail stores closed than in the first half of 2008, in the second half the trend reversed: there were fewer store closures than in the second half of 2008.
Another interesting piece of news is that because, starting on January 1, 2010, the government is using tax breaks to encourage long-term investment in a range of financial products brokerage firms and other financial institutions are preparing for an anticipated onslaught of interested small investors.
As for unemployment, it is high and still rising but the rate of change has slowed. In December, at 10.5%, it was the highest since 1998. The opposition naturally finds every new higher figure an excellent political target. However, Fidesz politicians are apt to talk as if the unemployment rate had nothing to do with the international economic crisis and the government alone were responsible. Yes, unemployment is high, but it didn't spike in response to the crisis the way it did in some other countries. Here is a graph that shows what I'm talking about.
It is quite clear that unemployment was already high before the crisis hit (8.5%) and therefore the impact of the crisis was a great deal less dramatic than in some other countries. For example, either in the European Union as a whole or, even worse, in the United States where in August 2008 unemployment was around 6% and now stands at 10%.
According to the Hungarian government spokesman the relatively slow rise in unemployment was due to precautions the Gyurcsány and Bajnai governments took. First and foremost, he emphasized, the government initiated a new program called "Road to Work" that employs almost 100,000 people. The government has 97 billion forints to spend on this project in 2009 and in 2010 an additional 110 billion, on top of 7.5 billion from funds provided by the European Union. Moreover, the government spent 7.86 billion in direct aid to help about 50,000 workers remain employed and indirectly helped save another 91,900 jobs. In addition, employers will save about 400 billion forints because the government lowered payroll taxes as of January 1, 2010.
Another reason for the relatively low impact of the economic crisis on Hungarian unemployment is the stream of money coming from the European Union for various projects. Almost every city, town, and village received stimulus money. Hundreds of school buildings are being refurbished, for example. Agricultural subsidies provided by the European Union have never been higher. So, all in all, it could have been much worse.
Admittedly Hungary was saddled with a huge deficit that had to be remedied by an austerity package introduced in the fall of 2006. So the economy was already slowing down before 2008. Gyurcsány's misfortune was that the international economic crisis hit just about the time that his austerity program might have borne its first fruits. He was one of the many victims of the crisis that began on Wall Street.