The Hungarian model works! Who would have believed that it was possible to tune up the economy and decrease the budget deficit at the same time, and that there are more and more workplaces created and the state debt is still able to decrease. If you are wishing for a small economic wonder, you are looking at the right place in Fidesz.
Public television will probably flicker from more than half a dozen channels in Hungarian homes by the end of this year; so the number of public channels will be at least doubled. Good times, which have finally arrived for the Hungarian economy, will come to all the households with the basic package.
First of all they have to report about the European high score earned by the Hungarian economic growth. It happened in the second quarter of 2014, when the domestic economy managed to create 3.9% more value than one year before. The autumn quarter managed to gain another 3.2%, which still scored among the top three of the European Union.
These are the most recent available GDP numbers. The European Commission expected Hungary to manage a growth of 3.2% for the full year in 2014 in its last prognoses made late last autumn. As opposed to the case of many other member states, Brussels adjusted the number for Hungary upwards, matching the expectations of the Orbán government. For 2015 the Commission calculates 2.5% growth and for 2016 2%.
The automotive growth engineis exhausted
The government is fully aware that the engine of the growth, the automotive industry, cannot carry the whole economy on its shoulders for ever. The large car factories of Mercedes-Benz in Kecskemét and Audi in Győr started car production in spring 2012 and in summer 2013; last year both plants reached the top of their capacity by starting to work in three shifts.
Economic experts have calculated that installing a unit with a capacity of producing 100,000 cars in a year is able to increase the Hungarian Gross Domestic Product by a whole percent. Especially Audi gave a real kick to domestic growth with its growing demand at numerous suppliers. To say it simply, Hungary’s economy managed to grow in the last months thanks to Mercedes and Audi.
This engine consequently expired, since the big automotive plants are now part of the basis. Where will the impulses come from in the future in order to achieve a maybe really sustainable growth?
Economic Research Agency GKI makes economic prognoses for the government as well. The most recently prepared studies from September and December differ mainly in the fact that the researchers assessed development in a more positive way towards the end of the year, while the tendencies for 2015 and after that in a more pessimistic way. While the growth prognosis was 3.2% at GKI too, the institute corrected its growth expectations for 2015 downwards to 2.0%.
The enormous price fall of raw oil should have a positive effect, at least on the short term. The political situation is getting more and more insecure, however. Concerning the Ukrainian conflict for example, Chancellery Minister János Lázár spoke quite bluntly on the fears of the Hungarian government about its possible escalation. Hardening positions would undermine an important cornerstone in the policy of opening towards the East.
Today it seems like the EU is responding to the present changes with stricter sanctions, following the example of the USA. The response of the embattled Kremlin will not be missed. Only the Chinese continue to do business with the Russians… and the Americans.
Global politics at the door
The elections in Greece are over, the South Europeans plundered by their elite, and the banks could have hardly given a clearer message: Where politics fails, it’s time for more radical solutions. Whether this is good for the eurozone is another question.
While Hungary is getting closer to the euro area in terms of criteria to be fulfilled, in political terms it’s keeping its distance. Taking the current turbulence into account that’s quite understandable. The European currency is getting lightweight, just like the EU in global politics. The topic of the euro is not on the menu today in Hungary, even if politicians like to warm it up from time to time for some reason that is not quite clear to the public.
Terrorism is not an issue in Hungary either. All the parliamentary parties agree on this. The problem of immigration might be, though. The usual number of refugees “ending up” in Hungary used to be around 2-3,000 people annually, while in 2013 there were more than 20,000 refugees and last year more than 40,000. Time for the Prime Minister to sound the alarm.
In fact, the refugees are imposing only a marginal burden on the country, the costs of their maintenance and supervision approximately equalling that of the village stadium in Felcsút. Viktor Orbán is not upset about the refugees of war and political victims, he would like to filter out the economic migrants, who are only using Hungary as a stepping stone towards the rich Western countries.
These tensions generated by global politics could however seriously shake the labour market and thereby endanger the government’s ambitious plans regarding the deficit. The European Commission assesses an unemployment rate stabilised under 8% in Hungary; GKI expects an even lower value for 2015, namely 7.5%.
The Central Statistical Office has just reported its most recent results: the unemployment rate in October-December 2014 was 7.1%, unemployment has been constantly decreasing since mid-2013, and at the end of 2014 there were 391,000 registered job seekers at the employment offices across the country.
However, according to GKI, these top scores are made possible through the widely spread public work programs, along with the abolition of social assistance funds. The employment rate is positively influenced also by a number of active Hungarians, who are in reality earning their living abroad.
The biggest hill of debt of all time
The result for the budget deficit looks more believable, since it is consequently held under 3% by the Orbán government. In its most recent inflation report the Hungarian National Bank even expected shortly before the year-end that by the end of 2014 a budget deficit of 2.5% of GDP could be reached – this was even 0.3% lower than its own expectation at the end of summer.
According to the preliminary data published by the Ministry of National Economy, the state budget deficit in 2014 was HUF 100 billion lower than in 2013, in absolute numbers. Still, the government was able to have HUF 650 billion more expenditures compared to the previous year, since the incomes increased by about HUF 800 billion, thanks to the high growth rate, more employees and growing consumption.
The Hungarian state will no longer have such tools in its hands in future as privatisation and liquidation of the private pension funds in order to keep the state debt under control. The EU is expecting Hungary (just like the other member states with a high debt ratio) to reach the “healthy” ratio of 60% debt according to the Maastricht requirements.
However, the Orbán government needed various tricks in the last two years to keep the debt under the critical limit of 80% and somehow conjure a downward trend. In fact the national debt calculated in forints grew by HUF 1,900 billion last year and at the end of the year was just below HUF 24,000 billion – the biggest hill of debt ever. With every percent of lost economic growth Orbán is losing around HUF 300 billion of wiggle room. So here we have possibly the hardest challenge of 2015.