Economy: As the forint weakens, Matolcsy talks more about the image of the decade

Avoid the curves – until Tuesday, that was the motto at Freedom Square. The Magyar Nemzeti Bank forecasts promised readers that despite the coronavirus epidemic, only the growth rate will slow down, but the economy will not contract and will rebound from the V-shaped low point. This was only rewritten by the Inflation Report prepared for the Monetary Council meeting on Tuesday and presented today.

But very,

if you foresee a fall from 5.1 to 6.8 percent this year, which could be followed by a rise from 4.4 to 6.8 percent next year. “Economic performance could reach pre-epidemic levels in the 2022 round,” the Monetary Council said in a statement.

That is, some self-critical phrases or explanations could have been expected from the president, who is rumored to have his own obsession with crisis management without crisis. Just as it may have reassured money market participants as the first speaker at this year’s roving meeting of the Hungarian Economic Association, as they rewarded Tuesday’s non-decision on the monetary toolbox by weakening the forint. Because the fact that the Monetary Council considered as the most important task increasing the budget of the growth bond program to 750,000 million HUF was hardly considered a substantial correction. This allowed low-rated, mostly friendly companies to borrow even cheaper with the support of the central bank.

It would also have been timely to credibly explain how the central bank maneuvers between price stability, the controlled devaluation of the forint and the recovery of the economy, thereby complementing its own mandate from 2013. Because it is not exactly a story of success. Inflation in Hungary is the fastest in the entire European Union, and the difference between its size and the central bank’s base rate, the real interest rate, is also the largest here, that is, economic agents receive the highest monetary policy stimulus, but the decline in the second quarter was the most severe. But the president did not start the audience with his own point of view. Not today, not at previous roving rallies. As usual, he analyzed global processes, looking at the analysis of the past and the future.

Looking back to the 1940s and 1970s, he flashed with analogies and illumination of differences what he thought the image of the 2020s would look like. Instead of rampant globalization, the decoupling “The era of disconnection is coming, the intertwined worlds are separating,” he explained. After the 2008-2009 crisis, central banks switched to fiscal policy, replacing it here and there, they tried to stimulate the economy. The 2020s, on the other hand, will be a world of fiscal and central bank policies at the same time, forming a “hybrid merger.” The decade will have a strong geopolitical character and will bring a financial revolution, he added.

“The crisis must be addressed not only epidemiologically, but also economically, socially,” he surprised his audience. I mean, with the admission that there is a crisis, because until now there has not even been a reference to this in the house of the Magyar Nemzeti Bank. After sketching many historical parallels, he urged, unraveling the dilemmas of the present, that the transition should begin, first by reviving economic growth and then “responding to growing indebtedness as well.” According to him, the situation today is different from that of 2010, when first the balance had to be restored, and only then did the turn of growth come. Now the order will be the opposite. After all, rescue packages and development packages involve borrowing, which is a consequence of the creation of money from both the state and the central bank.

This image reveals that the crisis situation has forced the first speaker of the nomadic assembly to show some modesty. After all, it is memorable that Matolcsy, as minister and governor of the central bank, has previously demonstrated with satisfaction that the Hungarian economy was able to maintain rapid growth, price stability, improve employment and maintain financial discipline by maintaining balance. It is clear from his previous lectures that the standard of living in Austria was almost within reach. This rapid recovery was interrupted by the epidemic and, we must not shy away from it, because of the accompanying crisis, the recession.

Hungary cannot follow the Japanese path, which is characterized by the fact that public debt accounts for 240 percent of gross domestic product, half of which is included in the central bank’s balance sheet. This is not possible in Europe: it has given a reassuring response to those who, looking at the purchases of government bonds from the Hungarian National Bank, may fear that there are no limits to budget financing by the central bank. The decade will bring a revolution in money creation, he said, but development policy and money creation are not enough, a “radical change in competitiveness” is needed. The requirement of long-term sustainability should also apply, in social, economic and environmental terms, as part of which it is necessary to reduce income and wealth disparities.

The latter is once again an element that deserves attention, since Matolcsy’s functioning as Minister of the National Economy was not characterized by this: the abolition of the tax credit, the 47,000 florins of public works below the minimum wage and the allowance for search of employment. caused. In the current crisis, many external and internal critics say the first thing to do would be to extend Europe’s short-term unemployment benefits. But the president has not gone into considering such specific actions as he has discussed the small and large details of monetary policy.