Is the Hungarian economy in trouble?

Being no expert on economic matters, I have been hesitant to comment on the state of the Hungarian economy, but for a long time I have had the sneaking suspicion that, despite the self-congratulatory reports of the government and the fairly good numbers, something is awry. Something doesn’t add up. Every day we hear about 45 billion for this project, 35 billion for that project, 50 billion for something else. Most of these projects are frivolous, the classic being a train taking non-existent fans to the Felcsút Football Academy’s fancy stadium. Almost all of the projects are being paid for, at least in part, by money Hungary receives from the much-hated European Union, money that János Lázár, who is in charge of the convergence funds, is trying to spend as fast as possible. These are the investments that were behind the surprisingly good economic growth in 2015. Lázár, who is often quite blunt in his public statements, admitted that Hungary’s economic growth depends on how much money he can “squeeze out” of the convergence funds. Since in the next few years less money will be coming from Brussels, unless the Hungarian economy picks up steam, future economic growth will slow. Under the present circumstances, if the flow of money from Brussels were to stop the economy would simply collapse.

At least this is the assessment of the Institute of Budgetary Responsibility (Költségvetési Felelősségi Intézet). This institute serves as a watchdog over the government’s economic policies. It is a non-governmental organization that was formed in 2011 when Viktor Orbán abolished an official government office, the Budgetary Council, that served the same purpose. The Budgetary Council came into being at the insistence of Fidesz, which, when it was in opposition, was very keen on holding the government accountable. After winning the election in 2010, Viktor Orbán found the Council burdensome, especially since its head, George Kopits, an American-Hungarian who formerly worked for the IMF, severely criticized the government’s budget proposal for 2011. I suggest you read my piece “Goodbye, Mr. Kopits” from November 2011. Here you will meet a rare specimen: a man of integrity. Kopits is a conservative, but by 2013 he was quoted in The Wall Street Journal calling Viktor Orbán’s regime “a constitutional mob rule.” Supporting the work of the Council was a research team of economists. Some of them went on to found KFI.

The Haza és Haladás Alapítvány (Homeland and Progress Foundation, established by Gordon Bajnai) commissioned KFI to prepare a study on the “technical outlook” for the years between 2015 and 2019, which is available online. Without going into the details, let me just say that Balázs Romhányi, the director of KFI, described the Hungarian economy “as a car without an engine that is being pushed and only its windshield wipers work.” Those who push it obviously reside in Brussels.

How heavily is Hungary dependent on the European Union subsidies? As Hungarians nowadays like to say, “brutally.” Here is just one example. The government is hoping for an economic growth of 2.7% in 2016 based on receiving 1,988 billion forints this year and 1,105 billion forints next year in subsidies from Brussels. According to Romhányi’s calculations, however, Hungary would need an extra 600 billion to achieve this goal.

Since Hungary’s GDP depends so heavily on these subsidies, it is of paramount importance for the Orbán government to spend the money as quickly as possible, even if not wisely. Index uses the phrase “throwing the money” when it describes Lázár’s efforts to get projects underway. Although, according to KFI’s calculations, the larger Hungary’s economic growth is in 2016 the smaller it will be in 2017, the study talks about 3-4 “good years.” So if Brussels continues to push the engine-less car, it will help Viktor Orbán’s far-right regime win the 2018 election. Perfect timing, I must say.

economic growth2

Even though the government is under budgetary constraints from Brussels, its spending continues unchecked. “Whatever money comes in [from domestic sources] is immediately being spent.” As an example, when the government received 450 billion forints more in tax revenue than anticipated, “they happily spent the windfall.” Nothing was put aside for a rainy day. In fact, it seems that they spent not only the unexpected revenue but even more.

The government is standing by its call for a 2.4% budgetary deficit. But it seems that without additional revenue it will be hard to meet this target. At the end of October the Magyar Nemzeti Vagyonkezelő Zrt. (Hungarian National Asset Management) sold 14 million OTP shares  for 75 billion forints. As a blog writer described it, the government was selling the family silver.

In assessing the economic health of Hungary, economists pay particular attention to employment figures. But there are serious questions about the accuracy of the data being released by the Central Statistical Office (KSH). The concerns are explained quite well in portfolio.hu, so here I will merely summarize the results. Hungary, like the United States, has two measures of employment: the institutional or establishment survey and the labor force or household survey. According to KSH’s own labor force survey, “the entire growth of employed people in the business sector (without employees in public works and those working abroad) totaled 294,000 between 2011 and 2014 [while] the institutional surveys came up with merely 3,000 people.” Surely, KSH is doing something very wrong.

All in all, we have no idea about what’s really going on in the Hungarian economy. I suspect nothing good. I am almost sure that if the Orbán government were to fall tomorrow, the new government would be in a terrible financial predicament. And the majority of Hungarians, in their total ignorance of what’s going on, dream of hosting the Olympic Games in 2024. In fact, 70% of them would be mighty proud.

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tappanch
Guest

The numbers of the Hungarian Treasury show an all time high in the gross debt of the central government in Hungarian currency, 25.5 trillion forints, as of 12-04-2015.

The Orban government has increased the gross debt by 42.2% in forint terms since its takeover on May 31, 2010.

This was achieved with more than 10% of the revenue in the budget coming from EU support !

Calculation:

Gross debt on May 31, 2010 (no longer available online, but I saved the old data)
= 19,933.4 billion forint.

Nationalized retirement funds, fully spent in 2011-2013
= 2,846.2 (value as of September 30, 2015)

Gross debt on December 4, 2015
= 25,505.4 (by Treasury)

http://akk.hu/uploads/Gn15XAna.xls

Remark:

Gross debt on September 30, 2015
= 33,723.7 (by National Bank)
[This number includes the spent retirement funds, but this explains only a minority part of the discrepancy between the numbers)

http://www.mnb.hu/letoltes/ahtadatok-hu.xlsx
(save the data, because it will disappear in a few days)

Guest

Looks like Hungarians are living in an economic lala land where looting is a fundamental right, and in that looting free-for-all they are topped only by unaccountable Brussels bureaucrats who feed them dollops of moolah looted on the sly from hapless British, German, Dutch and Danish taxpayers in the name of “equalisation.”

Ayn Rand is no doubt spinning in her grave.

But let’s never forget the story of the ant and the grasshopper, as those who keep defying economic laws of gravity, always and inevitably come to a very sticky end.

Unless of course they are senior bankers in financial institutions “too big to fail.”

Which the Hungarians are certainly NOT, and neither are the unaccountable Brussels bureaucrats who feed the Hungarians cash looted on the sly from the suckers and marks of Northern Europe in order to finance Hungarian “bridges to nowhere”, but primarily in order through that to fatten Swiss and Cayman Island bank accounts for the Orbanite mafiosi.

tappanch
Guest
The Orban era is a strange mix of Horthy’s (see Homan’s sculpture) and Rakosi’s (see doctored and/or obliterated economic data). Here is a ridiculous 2015 overkill of the personality cult of the 1950’s at a local level. The free biweekly of a Budapest district is placed in every citizen’s mailbox. Before 2010, it was a multi-partisan publication. November 27, 2015 issue B= Fidesz mayor of the district. T= Fidesz mayor of Budapest. page 1: B’s big photo. page 2: B participated in a public event, article page 3: B’s photo with minister Varga page 3: B participated in another public event, article page 4: B’s third photo page 6: two photos of T. T participated in something. page 7: B will open the temporary ice rink page 8: B’s fourth photo and continued article page 9: Ader’s photo and one page article how much he loves the Hungarian forests page 11: B’s fifth photo page 14-17 local programs , no B at first reading, what a relief page 20: Lord Mayor T is a caring person page 21: just a tiny photo of B. page 22-28: ads page 29: B reappears, and wow, so does T ! page 32: the… Read more »
Guest

A Modest Proposal

Coming to think of it, the Hungarian public would be incomparably better off, if the EU would hire helicopters and chuck out crate-fulls of high denomination euro notes all over the Hungarian countryside (á la Milton Friedman’s “helicopter drop”).

Only the Orbanite mafia would miss out on the dough. And the Brussels bureaucrats could be busy preening themselves about just how virtuous, effective and egalitarian they were in managing their European “equalization” program.

Unless of course some key unaccountables in Brussels are actually in the pay of the Orbanite mafia, because in that case, my modest proposal could never get off first base.

tappanch
Guest

@Mike , nice thought.

6 billion euros divided by less than 10 million people gives 600-700 euros. The average net salary is 500 euros a month.

Suppose we have a family of two average earners with two children. They would get 2600 euros directly from the EU. The EU support would increase the disposable income of this family by 21.7% !!

Latefor
Guest

I have a modest proposal to save the Hungarian Economy: offer the Kingdom of Hungary to George Soros on one condition only: He must take his billions to Hungary; pay off the debt; invest it into the Hungarian Economy to create employment; invest into education; improve the Hungarians living standard; buy back old (pre-Trianon) territories etc. etc.
He would be called: King George Soros, the Adorable.
He has achieved everything humanly possible in his life time, but he’s never been a crowned king yet. Lets face it: he would be loved and adored by the Hungarian people and even could become a rival to King Mathias. He would go down in Hungarian History as the greatest man ever lived on the planet. Just a thought. (Soros fancies himself as a great humanitarian, in Hungary he could do real miracles with his love and money).
And Orban could stay as the PM of the Kingdom of Hungary. (someone would have to organize incoming tourism for the coronation)

petofi
Guest

@Latefor

Did you run out of drink?

Did you run out of batteries…?

Guest

…….ran out of brain cells and a reality quotient………pitiful

Member
I have a better idea! Why don’t we just assemble all Hungarians on the ice of the frozen Danube, unanimously elect Viktor Orbani King of Hungary, and on the 14th of February the new king can make his entry into his castle in Buda. I think latefor should fly to Hungary for the occasion and bow down to her king as a special guest. He would love no more than his new King walk on her back for a moment. The Euro should advance 10 years of EU subsidies for the precious king for him to distribute to his friends and family. Right after Orban can declare that he cut all ties wit the EU, as they are just pain in the behind. Burn all the government financed the hospitals, and schools down as people who cannot pay for proper health care got what they worth in the new Kingdom. Orban will erect statues for all anti-semites and turn old synagogues in to Casinos, and give the Golden Key to his best buddy, Vajna. Princess Rachel would come back from her Swiss education to be made the Princess of all hotels. The land of course would go to Meszaros with… Read more »
Latefor
Guest

Petofi – the first time in your life you hear a viabe solution to a pressing problem and your typical reaction is a vicious ATTACK. I know, I know . . . You prefer the Friedmanite ‘helicopter drop’ !
Give it to the ‘morons’ and make sure to drop it with batteries so they can you know what!

Guest

London Calling!

“…….buy back old (pre-Trianon) territories etc. etc.”

Ha! Ha!.HAaaaaaaaa! HAAaaaaaaaaaaaaaaaaaaaa! Oh! Sto…… HAAAAaaaaaaaaaaaaaaaaa stop pleeeeeeeees ….HAAaaaaaaaaàa ……
Haaaaaaaa. STOPPPP!!!!!……. Haaaaaaaaaaaàaaàaaa…….

“……..a viabe solution ………(not even viable)…….

Ha! Ha!.HAaaaaaaaa! HAAaaaaaaaaaaaaaaaaaaaa! Oh! Sto…… HAAAAaaaaaaaaaaaaaaaaa stop pleeeeeeeees ….HAAaaaaaaaaàa ……
Haaaaaaaa. STOPPPP!!!!!……. Haaaaaaaaaaaàaaàaaa…….

Latefor you’re mad!…… Doo Lully Tap!

Ha! Ha!.HAaaaaaaaa! HAAaaaaaaaaaaaaaaaaaaaa! Oh! Sto…… HAAAAaaaaaaaaaaaaaaaaa stop pleeeeeeeees ….HAAaaaaaaaaàa ……
Haaaaaaaa. STOPPPP!!!!!……. Haaaaaaaaaaaàaaàaaa…….! ¡?

Regards

Charlie

Latefor
Guest

Hey, CharlieH & Petofi!
I’m thinking about changing direction and write POLITICAL SATIRE in the future.Just look at the reaction I’ve just received from you guys! And you are calling me a lousy writer! 🙂

Member

Latefor
December 10, 2015 at 3:13 am
Hey, CharlieH & Petofi!
I’m thinking about changing direction and write POLITICAL SATIRE in the future.Just look at the reaction I’ve just received from you guys! And you are calling me a lousy writer! 🙂

I think the changing direction is a great idea, but reading your ideas, style, and looking at the feedback, I would say Circus Clown in travelling Russian circus is more fitting! Good Luck! 😉

Latefor
Guest

Some1 – re: circus clown
Believe it or not, even “genetically inferior morons” like to have a few moments of glory. Also, if I was Victor Orban, I’d change the name of “Fidesz” to “BOGATYASOK”. This could work miracles at the next election.

Member

@Latefor

I like your stile! Humor is is the only and best way. Keep up your work.

Latefor
Guest

Albrecht – God bless you!

nwo
Guest

Your analysis is largely correct. The medium to long term forecast for the country is poor given the combination of lack of private investment, poor levels of educational achievement and demographics. It is also true that Hungary is very much like the proverbial “welfare queen” living well off Government hand-outs (in this case from the EU). And as you make clear, these hand outs have been less than ideally invested into long term growth projects. However, over the short term, the economy has improved, a lot because of the Keynesian impact of Government spending, but also due to improved consumer sentiment (the forced Fx mortgage conversion HAS been successful) and relatively good performance in the export sectors. Also, as much as I don’t like to admit it (and much has been due to luck) the MNB has pretty successfully managed interest rates and the HUF in recent years. As such, Hungarian Govt debt has been a solid performer, and sooner or later a sovereign upgrade is likely to come even though the rating agencies also see the long term structural and policy problems.

árpi
Guest
@nwo You give way too much credit to the corrupt Matolcsy gang. There is literally nothing investors wouldn’t buy (including junk bonds like that issues by the Hungarian state or state-owned entities) given the printing of money by virtually all major central banks. In fact I can’T recall when this happened the last time, that the ECB (or the Bundesbank before the ECB), the fed, the BoJ, the BoE were all madly printing money. Also energy prices are low (prompt electricity prices fell by some 70% in a matter of a few years) and so there is relatively little inflationary pressure in Hungary especially as growth in Hungary is really subdued and will remain so given the lack of private investments. What’s remarkable – and we should emphasize that – is that even under such exceptional circumstances (e.g. you can get credit with almost zero interest rate) private investments have been falling again lately and are certainly way below levels seen in peer economies of the CEE region. Even under such exceptionally favorable international circumstances the growth is entirely based on EU subsidies, the occasional agricultural bumper harvest — and let’s not forget on cooking the books (in a way… Read more »
Observer
Guest

@nwo @árpi

I think you are both right and one does not exclude the other. It is actually the interplay of the positive and negative factors in producing the result.

.. over the short term, the economy has improved because of the … Government spending,
but what after EU cohesion funds dry out?

… also due to improved consumer sentiment (the forced Fx mortgage conversion HAS been successful) ,
but what did it cost MNB, or was it a free lunch?

… the MNB has pretty successfully managed interest rates and the HUF in recent years… As such, Hungarian Govt debt has been a solid performer,
but the foreign debt is significantly up with no prospects of improvement.

.. the ECB, the FED, the BoJ, the BoE are all printing money,
but there is no inflation.

…Energy prices are at record low ..
great for Hungary and Europe, but the Russians may disagree .

.. even under such exceptional circumstances both private investments and growth are based entirely on EU subsidies ..
so the future doesn’t look bright.

…Let’s not forget on cooking the books ..
but no s..t hit any fan, but for how long?

Any serious articles on how this balance may play out?

Observer
Guest

OT

Right on the heels of the idiotic Schmidt article: Chancellor of Free World.

http://time.com/time-person-of-the-year-2015-angela-merkel/

Guest

The whole system will continue to function – not because but in spite of Fidesz’ idiocies …
Most people in Hungary don’t have time to think about politics, they are just working their a**es off, doing a second or even third job in the evenings and over the weekends to manage …
And of course some part (maybe a high percentage?) of the money given out by the EU returns, because people buy a lot of stuff which is not produced in Hungary, not only cars and electronics but many/most everyday products.
Just look at the trade statistics for import/export!

A bit OT:
Many people I know are officially only employed part time – of course they work full time but the extra money is paid “black” …
That means not only less tax but also less benefits in the case of sickness – and also a much lower pension some day in the future.
Does anyone here have/know statistics on this problem?

Guest

Massive, Wolfi

Not so long ago we had a tile stove built in the ‘English’ room in the house in Hungary.

One Hungarian worker with a Romanian helper.

On completion I paid the money and being a ‘foreigner’ their distraction techniques were so good that they left without giving a receipt.

They both had told me that they went to church – so Sunday finishing was out. And the Romanian was very grateful for the ‘trianon’ vote and Orban shone out of his posterior.

The tile stove leaked spilling carbon monoxide fumes at the junction with the chimney and he refused to fix it saying it was the plasterer’s job! I’m afraid my experiences with Hungarian tradespersons is not good. Terrible in fact.

However he changed his tune when I advised him I would report it to the tile-stove museum (yes there is one! In Gyor.) where he had rebuilt some stoves – and my partner obliquely mentioned the lack of documentation!

He was quickly back to fix it. I’m sure it was the tax thing more than the museum thing that did it.

Yes the tile stove would have yielded quite a few forints in unpaid tax to these churchgoers.

(Roman Catholics)

Member

Many people work under the table. very true. Many people who work for government subsidized or contracted ventures, do not get paid. The Formula 1 is known for contracting out certain aspects (security), than the company folds, and do not pay their employees.

Observer
Guest
Guys, ignore the trolls. Back to the subject. If I remember well, there was also a provision that the government budget had to be approved by the Budgetary Council and if this did not take place within two months the Hungarian President could dismiss the government and call a parliamentary election. Look who’s talking about double standards. The government’s incredible employment figures are something I often challenge in conversations. Although we can safely assume trickery and lies here as well, let’s look at the figures. The creation of one new workplace requires a capital investment of HUF 3 to 6 million (depending on the industry ; 2011 figures). The government claimed to have crated 172 000 new jobs in 2014 alone, an increase of 14%, for which there should have been a new investment of HUF 774 billion (4.5 mil / workplace). http://www.ksh.hu/docs/hun/xftp/gyor/fog/fog21412.pdf KSZH shows that HUF 5 216 billion were invested altogether in 2014 Q4, exactly 14% or HUF 730 billion more than the year before. Seems an almost perfect fit. http://www.ksh.hu/docs/hun/xftp/gyor/ber/ber21412.pdf However, with HUF 32 180 billion GDP for 2014 the above investment of HUF 5 216 billion is still only 16.2% of GDP. Such a low rate… Read more »
lutti
Guest

Show business is tough.

Faktor.hu a recently started pro-Fidesz media site operated by former TV2 media workers seems to be struggling.

http://gorillavideos.tumblr.com/image/134846823174

Observer
Guest

OT

Right on the heels of the idiotic Schmidt article: Chancellor of the Free World.

http://time.com/time-person-of-the-year-2015-angela-merkel/

tappanch
Guest

Economist flatters Orban by placing him at Marx’s place in the unholy trinity of fear “players”.
comment image

http://media.gettyimages.com/photos/soviet-propaganda-banner-with-likenesses-of-lenin-engels-and-marx-in-picture-id170984886

dlon
Guest
Member

He is in perfect company.

Member

comment imagecomment image

Member

comment image

Guest

What’s going on?

The HUF just jumped to 316 – almost 317 against the €?
Three days ago it was at 310 – 311 …

Reality Check
Guest

OT: Commission opens infringement procedure against Hungary concerning its asylum law http://europa.eu/rapid/press-release_IP-15-6228_en.htm

Istvan
Guest
Stratfor’s Global Intelligence is a consulting firm used by many transnational corporations as part of their foreign investment strategies. Its subscriber based. For example privately they have done consulting work related to various investments in Hungary and they have looked at the European Union’s Cohesion Policy because to be honest these funds can be critical for investment decisions by transnational companies. The reports for the most part are restricted, so for example the public at large would have little idea of what a specific analysis of the investment possibilities in Hungary or Romania are for example. Stratfor’s overall analysis of the EU Cohesion policy is scathing in a rather restrained manner and that is public. But for specific transnational corporations interested in time limited investments the utilization of these funds may be invaluable. Hungary is as all on this blog know defined pursuant to the EU as “less developed” (areas where GDP per capita is less than 75 percent of the EU average). The European Union can provide 50-85 percent of the total financing of an agreed project based on how less developed the country is or more specifically a defined region in that country is. So there are in… Read more »
Guest
Guest

Hi! Mike! – I notice your equivocation with the question mark.

“The “new” Pécs, plant operators are pround to point out, produces 400,000 tons of CO2 less than it would by using natural gas.”

So no news of carbon capture? If Hungary developed this with their (still remaining?) clever scientists they’d reap gold!

Instead of nuclear-in-hock-with-putin.

EU funds spent on R&D – instead of football stadiums and choo choo trains.

Kingfisher
Guest

@Charlie. If you’re in Budapest, you’ll have seen the adverts trying to convince people about the virtues of Paks. One of them gives the strong impression that without Paks (and therefore, Paks II), we wouldn’t be able to light up the Chain Bridge at night.

Scaremongering aside, I wonder in how many other capital cities we would find pro-nuclear plant adverts!

Guest

Kingfisher! the mind boggles!

Imagine the advertising copy? I’m instantly reminded of the Ready-Brek porridge adverts here.

The schoolboy walking alongside his mother as he glows mysteriously in a luminescent warm glow!

Over here the oil fraternity are predicting that oil will be less than £1 per litre – prices last seen here in 2009 – with Brent crude falling below $40 dollars a barrel.

Many are predicting this to be a long term decline.

I know PACs II is very long term – but it would be interesting to see how the projections change basing cost benefit analysis on these new lows. (That’s of course if the state secrets are declassified!)

“Glow placidly amid the noise and haste, and remember what peace there may be in silence….

Guest

Well actually you could light it (Lancid Hid) up with a battery if LEDs were used – I’ve just replaced my kitchen downlighters with LEDs – phenomenal savings.

And wasn’t Orban’s son-in-law involved in over-priced LED street-lamp replacement?

Forget nuclear – we’ll all be on renewables by then?

Member

A strog point though.

petofi
Guest

@Istvan

You cannot be ‘scathing’ and ‘in a restrained manner’. Sorry. ‘Scathing’ is extreme; ‘restrained’ is tempered.

When you were in the armed forces, did you ever make an all-out attack in a ‘restrained manner’?

Just sayin’…

Istvan
Guest

Then let us say the perspective was very critical of the entire Cohesion program as opposed to scathing. Possibly that would be a better chacterization petofi.

tappanch
Guest

Hungarian employees, sample size = 5000

Would you move abroad if you received a job offer?

Health care: 80% yes (favorite countries: Germany, Austria, Switzerland, UK, US – in this order)

Services: 75% yes ( Germany, US, Canada, Austria, Netherlands )

IT [computers] : 63% yes (Switzerland, Germany, Austria, Canada, US)

https://www.profession.hu/cikk_kulfoldi_munka/20151210/milyen-orszagba-vagyik-a-magyar-munkas/6093

Member

OT comment image

csoda.peter
Guest

Hello,

I notice there is a very good official English translation of the economic report cited.

It took me a while to look for it, so I reproduce it here in case anyone else is interested

http://www.kfib.hu/uploads/FRIB_baseline_projection_08-12-2015.pdf

wpDiscuz