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Currently, Hungary is not sufficiently prepared, both technically and humanly, to be able to quickly and successfully protect the economy and human life and health in a physical environment without confinement, Financial Research experts said in their latest forecast. posted on Monday.
In these weeks, it is difficult to make a macroeconomic forecast not only because the nature of the coronavirus epidemic as an off-farm factor is still unknown, so no analogy can be applied, but because the spread of the pandemic is apparently taking place. stepping up right now. The fact that government reactions are also changing compared to the first stage of the epidemic also makes forecasting difficult. While the first phase in Europe and Asia was characterized mainly by the greatest possible isolation from infections, now, at the beginning of the second phase, governments are refraining from widespread closures, meeting the needs of the social majority, the researchers wrote. .
Pénzügykutató Zrt. He made his new forecast based on two scenarios. the optimistic version Until the vaccine spreads, Hungary and the world will successfully treat the second phase of the epidemic without extensive closures or restrictions. The second previous phase will be completed relatively soon with the use of the vaccine, no later than the first half of 2021. By then, the country’s external economic situation will be broadly resolved and its relationships with suppliers will be reestablished. As a result of government action, investments supported by budget and credit subsidies will begin in the last quarter of 2020.
In this case, the fall in investment will not exceed 6 percent this year, and consumption will also contract only slightly, while household saving will rise amid rising real wages. Under this scenario, Hungarian GDP will contract “only” by 4-5%, employment will fall slightly and the unemployment rate will not exceed 4%. Equilibrium processes are deteriorating even then: the external surplus is decreasing, inflation is increasing slightly despite the favorable effects of external prices, and the budget deficit could reach 8% of GDP.
A pessimistic version with new outbreaks of the virus, the intermittent freezing of international links between hotspots and the fact that not only is it more difficult to regenerate the demand side, but supply (supply) problems are also partially perpetuated. In this situation, the new stimulus package will not be enough to boost consumer demand. On an annual basis, consumer spending could fall by as much as 5 percent and the decline in investment could exceed 10 percent, while the unemployment rate will rise to 4.7 percent.
Despite lower demand, inflation will be lower, but despite the government’s stingy management of the crisis focused on keeping the budget in check, the general government deficit could rise to more than 9 percent of GDP and the imbalance external will intensify due to high income deficits. Those left without income and / or those with low incomes are not expected to be compensated as their numbers increase; the resulting declining demand from 30 to 40 percent of society cannot be offset by the expense of the “above.” Thus, the crisis caused by the epidemic will be deeper and longer; spread of the vaccine “only” can solve some of the health problems. The decline in the second half of 2020 will exceed the first half, so GDP can fall by 7-8 percent on average during the year.
According to the forecast for the optimistic scenario, next year’s growth is 1-2 percent, while growth for the pessimistic scenario could reach 3-4 percent. However, even in the optimistic scenario, modest economic growth is largely due to a low base due to a significant recession this year, while neither real GDP nor employment will reach 2019 levels, the researchers believe.
| Name | 2020 – optimistic | 2021 – optimistic | 2020 – pessimistic | 2021 – pessimistic |
| GDP (previous year = 100) | 96.0 | 102.0 | 92.0 | 103.0 |
| Household consumption expenditure | 98.0 | 102.0 | 95.0 | 103.0 |
| Real income (previous year = 100) | 6.2 | 2.0 | 5.4 | 0.5 |
| Unemployment rate (annual average,%) | 4.0 | 3.7 | 4.7 | 3.9 |
| Exports (at current prices, annual variation,%) | 94.0 | 105.0 | 90.0 | 106.0 |
| Imports (current prices, annual variation,%) | 95.0 | 104.0 | 91.0 | 106.6 |
| External balance (billions of euros) | 3.03 | 4.18 | 2.86 | 2.46 |
| General government balance (ESA 2010,% of GDP) | -8.3 | -3.4 | -9.5 | -4.4 |
| Public debt (end of year,% of GDP) | 75.8 | 75.5 | 79.7 | 79.4 |
| Inflation (annual average,%) | 3.6 | 3.4 | 3.4 | 3.0 |
| Inflation (end of year,%) | 3.6 | 3.2 | 3.2 | 2.9 |
| Euro exchange rate (end of year, HUF) | 356.0 | 360.0 | 360.0 | 366.0 |
| Dollar exchange rate (year-end, HUF) | 300.0 | 303.0 | 302.0 | 305.0 |
| Industrial production (previous year = 100) | 92.0 | 102.0 | 87.0 | 106.0 |
| Construction production (previous year = 100) | 90.0 | 103.0 | 90.0 | 102.0 |
| Agricultural production (previous year = 100) | 92.0 | 109.0 | 91.0 | 108.0 |
| Nominal GDP (billions of HUF) | 46 712 | 49 171 | 44 636 | 47 584 |
Source: Pénzügykutató Zrt.
The deficit will surely disappear
Fiscal policy has fallen into a vicious cycle: to keep the deficit under control, additional spending that could have mitigated the drop in consumption was delayed and restricted, which then had the opposite effect of narrowing the tax bases: large revenue deficits and deficit increases. As a result of the weak economic performance forecast of 5-6 percent year-on-year due to the weak performance of the first half, the Ministry of Finance has already set the deficit at 7-9 percent of GDP this year since the end of August and has promised another package of measures. At the same time, Államadósság Kezelő Központ Zrt. It raised its issuance plan for this year to HUF 3,600,000 million.
According to the Financial Investigator, in the optimistic scenario, the general government deficit according to the ESA methodology will be 8.3 percent of GDP in 2020, while in the other case the deficit could reach 9.5 percent of GDP. GDP. Compliance with the 2.9% deficit forecast for 2021 is questioned by the significant change in this year’s base, the forecast for the two versions being 3.4% and 4.4% of GDP, respectively.
The public debt-to-GDP ratio could rise to 75.8 percent by the end of 2020 and then decline only slightly to 75.5 percent in one year. In the pessimistic version, public debt would rise to 79.7 percent of GDP this year (approaching its peak in 2010) and decline to just 79.4 percent by the end of 2021.
There is no need to worry about inflation.
While in many European countries inflation fell to almost zero as a result of the declining and then declining economy, in Hungary the price increase above 3% also persisted in 2020. The Financial Investigator’s optimistic scenario assumes an increase of 3.6% in prices for the year as a whole, and inflation could be less than 3.4% if the second phase of the epidemic (according to the pessimistic version) pushes domestic and external demand back more strongly.
External inflation will continue to have a moderating effect on domestic prices in 2021. Increase excise duties and maintain a special retail tax system, as well as a pro-election government policy in the run-up to the elections, as well as offset demand postponed during the viral crisis on the demand side and compensation on the supply side. , Consumer prices could rise 4 percent.
The MNB insists on making flexible
The MNB is not expected to change its interest rates this year. Presumably, in 2021 the central bank will try to stimulate the economy mainly through quantitative regulation and unorthodox methods, and not by adjusting its interest rates to disrupt the particularly vulnerable forint exchange rate. This leaves the base rate reduced to 0.6 percent and the overnight deposit rate minus 0.05 percent.
Market returns may rise further in the first half of 2021 and are expected to decline only when recovery from the recession is certain. By the end of next year, interest rates may return to about this year.
The forint
The MNB’s lax monetary policy continues to have a weakening effect on the forint exchange rate, which is also driven by weak investor confidence. The inflationary pressures derived from the weakening of the exchange rate in 2020 will be partially offset by the lack of demand.
According to the researchers’ optimistic scenario, by the end of 2020 the euro will stabilize at around HUF 356, strengthening at 360 in pessimism. The dollar forint exchange rate weakened due to mismanagement of the epidemic is expected to be around HUF 300 and HUF 302, respectively.
The MNB will continue its policy of a slow devaluation of the forint in 2021, which, according to central bank executives, will have a stimulating effect on the economy on the one hand and provide them with a freely usable profit on the other. In the optimistic scenario, the euro can strengthen to only 360 HUF, but in the pessimistic scenario to 366 HUF. The dollar will strengthen to 303 HUF in the first case and 305 HUF in the second, according to a recent forecast.
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