Jobs in Peril

After a short respite in the summer months, Hungary’s unemployment rate set out on a upward trajectory in September, reflecting the negative impact of the pandemic on the nation’s economy. The somber economic outlook gives little hope that the trend will reverse any time soon.

Hungary’s unemployment rate rose for the first time in four months in September, signaling that the second wave of the coronavirus pandemic has started taking a toll on the economy. In September, the number of Hungarians in employment stood at 4,482,000, which is a drop of 32,000 compared to the previous month and a decrease of 24,000 compared to the same period a year earlier, according to data published by the Central Statistical Office. The number of unemployed people increased by about 37,000 to 222,000 compared to the previous month, translating into an unemployment rate of 4.7 percent. The decline is mostly due to a fall in the number of publicly employees and Hungarians working abroad. The latter is most likely the result of the travel restrictions introduced by the government in September, which has impeded many Hungarians in taking up employment in neighboring countries.
Analysts expect massive layoffs in certain sectors of the economy as a result of the pandemic. People working in the tourism and hospitality sectors are most at risk to become unemployed as international travel ground to a halt in the fall.
Analysts at ING Bank point out that the short-time work scheme in Hungary ended in August, and many employers decided to lay off workers as the economic situation and outlook have not improved enough to preserve all of the previously supported jobs. This impact also showed up in the September data. As the second wave of Covid-19 hit the country in September, the government restricted opening hours in the leisure and hospitality sectors and closed the borders of the country. “Against this backdrop, we see a hit to the labor market in these sectors in the autumn, which will negatively impact the overall statistics,” according to ING.
The September figures are a harbinger of things to come as the data for the rest of 2020 is most likely to show a deterioration in employment. Even though the Hungarian government has not imposed very strict restrictive measures, trying to shield the economy, many other countries in Europe have and this will have a material impact on Hungarian economic developments. As a result of the recently announced measures in nations across the EU, external demand is set to fall substantially, uncertainty will increase, investors and consumers will grow more cautious, which will all lead to lower employment. Experts are calling for swift government measures aimed at mitigating the impact of the coronavirus crisis in order to tame the expected rise in unemployment. Such measures could include a wage subsidy scheme and facilitating the training of people who have worked in sectors where they will certainly not be needed in the short term.
In the absence of protective measures, many more Hungarians are bound to remain without an income as the economy continues to suffer from the impact of the pandemic. The International Monetary Fund projects that Hungary’s economy will contract by 6.1% this year, a considerable downgrade from its earlier estimate for a 3.1% contraction. Although the expected recession of 6.1% is quite severe, it is not uncharacteristic for the region as the Slovakian economy is forecast to shrink by 7.1%, the Czech by 6.5%, and the Austrian and Slovenian by 6.7%, respectively.
The relatively slow recovery anticipated by the IMF is more disturbing. Hungary’s expected economic growth of 3.9% for 2021 is well below Slovakia’s 6.9% or the Czech Republic’s expansion rate of 5.1%.
The expectations of the National Bank of Hungary are not that different from those of the IMF. The central bank projects economic contraction of between 5.1 and 6.8% this year, according to its latest quarterly Inflation Report released in September. The bank’s new forecast also assumes a more gradual, swoosh-shaped recovery.