2021 – How Big of a Recovery?

“It will be crucial when the protection of the population against infection can be achieved. If this is achieved in the first half of 2021, we expect the fastest economic recovery in Hungary in the last hundred years.” Even if the last half of this statement made earlier this week by the Governor of the National Bank of Hungary, György Matolcsy, is not shared by most economists, there is a consensus on foreseeing economic upturn in Hungary after the epidemic – as is the case in the EU, the U.S. and most other parts of the world.

According to György Matolcsy, the coronavirus epidemic has caused the fifth largest decline in Hungary in the last hundred years, which will cause many wounds in the short term, but will not destroy the basic tissue of the economy. In addition to the government's measures, MNB allocated about HUF 5,800 billion, or 13% of GDP, to the economy during the year, thus preventing the economic and health crisis from turning into a financial crisis.

However, further steps will be needed to maintain the pace of catch up. On the one hand, even before the outbreak of the epidemic, there were trends that predicted a slowdown in economic growth. Also, the economy that was before it did not recover after the epidemic. Not only crisis management but also change management is needed, he added.

All in all, we have every chance for Hungary to achieve one of the fastest post-crisis economic growth periods in the last hundred years, said the top official of the central bank.

Finance Minister Mihály Varga was also optimistic in a recent newspaper interview. The financing of the Hungarian budget and public finances is stable, and the future costs of the country's viability, epidemiological control and economic restart will be covered even if next year, only the agricultural support amounts due from Brussels will be received according to the specific rules, he said.

“In such a situation, economic policy must be in constant motion, we cannot afford development programs to stop and the state of the economy not allow it, either. Next year's Economic Protection Fund has therefore to become open from above, which means that whatever financial resources are needed must be available, he added.

Loyalty-based economic and social governance

According to the country’s Central Statistical Office, economic developments picked up significantly in the third quarter of 2020 compared to the previous one, faster than expected. Obviously, figures of the fourth quarter are not out, yet, but they will certainly be significantly worse. This is due to the second wave of the pandemic, the dampening effects of restrictive measures on supply and demand, and the impact of all this on deteriorating economic expectations. Looking at the trends, the Hungarian Economic Research Institute GKI decided to maintain its September “W-line” forecast, expecting a decline again in the fourth quarter after a large downturn in the second quarter and an improvement in the third one.

There is a general consensus that Hungary’s GDP will probably reach the level of 2019 only in 2022: GKI expects a 3.5-4% (3.7%) expansion in 2021, a figure between the EU forecast (4%) and that of the OECD (2.6%). These economic trends are accompanied by huge general government deficit, higher unemployment and inflation than before, and a very weak forint and deteriorating current account balance. Researchers state that the blackmailing ability of Hungarian and Polish politics won a modest battle against the EU as far as the rule of law is concerned. However, due to the general resentment in the EU, this may have serious negative consequences. They are confident that the Hungarian government responds to the crisis in accordance with the nature of the Hungarian model established a decade ago. While the centralized, state- and non-market-oriented, loyalty-based economic and social governance is being expanded, and the money spent in principle on crisis management is redistributed according to political considerations; very little has been done to prepare health and education for the new situation in order to help the main losers of the crisis. No coherent crisis management program has been announced, and the apparently outdated budgets for 2020 and 2021 have not been amended. The measures of the government serve partly to maintain and even increase the support of its beneficiary groups, and partly to make impossible the financial positions of opposition parties, local governments and independent non-governmental organizations that may endanger the power of the government. By changing the focus of Hungarian economic policy to revitalization instead of economic protection, it has become possible to support the investments and acquisitions of loyal business circles, while in the absence of government assistance, much more companies and families are in crisis than would be inevitable.