It can take a little time to get used to this number – 3.5% – since the Hungarian economy has not managed to produce even a similar growth rate in the past eight years. Following the planned pace, national income would reach a couple of billion euros by the end of the year. There would surely be some football stadiums built from this money and healthcare might finally also receive a part of the monetary blessing.
The Ministry of National Economy has just had a great day: the Central Statistical Office (KSH) announced a rough estimate for economic growth in the first quarter, namely 3.5%. However, we need to wait until 4 June to learn the reasons behind this surprisingly good number. Due to the lack of information, KSH could only explain the first estimate by robust growth driven by industry and construction.
This was really not a wild conclusion. Industry grew by a two-digit number in March and construction gained another third in volume!
The ministry should celebrate with champagne. The economy was a clear winner in the first quarter with growth not experienced in Hungary since 2006. The 3.5% even surpassed the expectations of analysts (2.7%). Adjusting for the calendar effect still produced 3.4% but what is even more important is that growth increased for the fifth quarter in a row.
The ministry did not fail to add that such numbers are not natural in Europe nowadays. The eurozone has not been able to speed up growth (despite the expectations) and its quarterly growth ended up at about 0.2%. The 28 EU member states produced an average growth of 0.4% by the end of 2013 (Hungary contributed with its yearly 1.1% to this average).
In the time slot January to March 2013 the average growth in the EU was about 1.4%, while the eurozone, which includes Hungary’s most important trading partners such as Germany, Austria, France and Italy, only managed 0.9%. The hopes of Hungarian exporters are currently Romania, which with its 3.8% currently leads growth in Europe.
While the KSH has not yet communicated the reason for the new dynamism in the Hungarian economy, Minister of National Economics Mihály Varga’s specialist division has already presented its version. The ministry is convinced that Hungary did not only achieve this superb statistic due to the performance of industry and construction (from the so-called Mercedes effect and the growth in construction due to many projects started by the government financed from EU subsidies, which we have already talked about several times) but rather thanks to a surprisingly broad growth base.
Thus, the service sector for instance contributed as well, while thanks to the credit programs of Eximbank and the National Bank the financial sector could reach a good result too.
The fact that these two sectors, which were richly burdened with extra taxes by the second Orbán government, are mentioned in an official press release from the ministry as contributors to the economic growth and therefore as a positive example, could mean that a peace agreement is imminent between them and the government.
The growing private consumption and the good results in the tourism, hotel and restaurant industry and logistics are not there thanks to the government, which has rather limited them with measures affecting these areas.
This is why more and more experts tend to believe that Hungary after “seven lean years” has not just simply begun to improve but this growth could even prove sustainable. More good quarterly results will be necessary to convince the rating agencies. When Hungary can produce growth rates of 2-3% in the medium term (without breaking the development process at the next global shock), the country can enter a new development phase and forget the nightmare of the first ten years as an EU member.
There is still a lot to do for this. Let’s just think about the statistics that might sound shocking in a European context, that Hungarian consumption is just now back to the level of 2004. Or about the state debt that is set just at 85% of GDP (rather due to technical reasons), which Hungary is just not able to further reduce even though the silverware was sold in the 1990s and the private pension funds were melted in by Prime Minister Viktor Orbán.
From another point of view, Hungary today cannot be compared with the country ten years ago, when it had just found its way to the world economy. Since then the country has grown to become a small export “giant”, where exports will reach the level of the national income in the near future.
With the help of solid balance sheets the government’s budget planning task will be easier to balance and counterbalance the solidly growing debt hill. There is a possible reason for conflict here with Orbán and the National Bank on one side and Varga on the other, because inflation has reached zero in the meantime.
While other countries simply inflate away their debts, Hungary is consciously throwing this ace from its deck. Even Orbán well knows that his politics of cutting utility costs has its downsides, because in a European context this is already threatening to head into deflation, stalling the price spiral artificially.
The government should also take care when handling the rescue measures for foreign-exchange debtors in autumn. The banks are looking for predictability more than anything, and this is a point that they can have in common with their debtors as well.