Economy: the government is trying to get the economy out of the well with families

Surprisingly, real household consumption decreased by just 8.6% compared to the same period a year earlier, according to the OSC report on the details of the 13.6% economic recession in the second quarter. Among the components of real consumption, the consumption expenditure of the households with the highest participation decreased by 8.4%. Household (domestic) consumer spending in Hungary was 12.8% lower than the previous year, after consumer spending by non-residents (eg tourists) fell significantly in the second quarter. The decline was particularly large for services, where it was measured at 24.8 percent.

The latter is not surprising, an important part of the quarter was affected by the restrictive measures introduced due to the epidemic, an important part of the discos and restaurants were closed, and until the roll almost any product of home, cinema or restaurant.

There is no recovery without domestic consumption

Household consumption is an important component of the growth of gross domestic product (GDP) on the consumption side and has been one of the driving forces in recent years. According to CSO data, since early 2015, real household consumption has typically contributed 2-3 percentage points to GDP growth each quarter; in the second quarter of 2020 it contributed 5 percentage points to the decrease.

Meanwhile, although community consumption (that is, the government) increased by 5.8 percent, it was only able to stem the decline in GDP by an additional 0.6 percentage point. Community consumption tends to have a much smaller effect on the change in GDP than household consumption.

So when the government talks about protecting jobs and people, and the government and central bank introduce measures that leave / provide money to the population, it is not just a social welfare dimension. How much the population spends, which obviously needs money, is also a very important factor in boosting the economy and stopping the recession.

No labor protection subsidies

The government likes to boast about the number of jobs it has saved with the “economic protection action plan.” On August 24, László György, Secretary of State for Economic Strategy and Regulation of the Ministry of Innovation and Technology (ITM), stated that 912,734 people could receive labor market support or training, labor protection wage support through this type resources and grants (this is the Kurzarbeit program) 204 514 employees participated. László György said at the time that the number of people involved had barely increased in the previous weeks, “There is a source, but there is no longer a need for the program,” so no extension is planned. The grants could be applied for until August 31, for three months.

This, of course, includes the fact that the show, even in its modified form, was not very attractive. And it is not known what effect the second wave of the emerging epidemic will have on the labor market. In any case, the government invested more subsidies for the fall.

It is true that the evolution of the labor market is encouraging at the moment, unemployment has not been released, the rate stood at 4.8 percent in May-July and fell somewhat in July. In June, average earnings were 15.6 percent higher than the previous year. Although the average was driven by the one-time HUF 500,000 benefit allocated to healthcare workers, growth in the private sector was also over 10 percent. (Again, just add that the amount applies to full-time employees – this is relevant in the part-time home office period.)

The government appears to be viewing the partial shutdown of the economy as a last resort, so much so that even the border blockade that just came into effect is justified in protecting the economy. On September 2, Foreign Minister Péter Szijjártó said that “in the second wave of the coronavirus epidemic, the partial shutdown of the Hungarian economy seen above should be avoided, and one of the best tools for this is a series of restrictive measures implemented. at the borders “.

The minister somewhat contradicts the opinions of experts (for example, Béla Merkely, rector of the University of Semmelweis and Gergely Röst, professor of mathematics at the University of Szeged): the virus has spread again in the country, so restricting entry is no longer enough to stop the epidemic.

The government is mainly trying to get money from the future.

Kurzarbeit is covered by the central budget, which the government has approached very tightly to alleviate the economic crisis. If the rebound was really fast, it could turn out that they were right and it would have been really unnecessary to invest large sums in the economy (as other governments have done). However, starting with the second quarter recession, it might have been worth protecting the economy more generously: although the Hungarian recession was in fact slightly less than the EU average (as the government emphasizes), it was greater than in the countries of the region. The government has allocated only 1.3 billion of the budget for economic protection (let’s say it has already been exceeded, for example, with sports investments), state and central bank soft loan programs (from new student loans to corporate loans), channeled subsidies mean another 7-8 billion guilders.

An important element is the credit moratorium, which means the suspension of loan repayments until the end of the year, which was taken by four-fifths of corporate debtors and two-thirds of retail clients. If corporate clients living with a moratorium are included, this year a total of HUF 2 billion will remain in businesses and households. The moratorium is on paper until the end of the year, but it can be extended. Given that the government is reluctant to spend from the central budget to combat the economic crisis, but is reluctant to distribute the costs (both among economic actors and in the future, encouraging indebtedness), an extension cannot be ruled out at all of the moratorium. Especially if they also want to encourage household consumption in 2021. Question what the banks would say about this, the government is currently negotiating with the Banking Association on the rules of the moratorium for 2021. And, of course, it is a question of how much the Losses caused by the moratorium would hold back lending from banks, and lending to banks is also badly needed to boost the economy.

The deficit is gone, retail purchases of government securities are needed

The government is reluctant to spend on economic protection out of its own pocket (ie the central budget). There are exceptions, as the Economic Protection Fund was created through budget transfers, so, for example, the extra money allocated to all types of investments in stadiums is also called “economic protection”. Due to the contraction of the economy (and with it state tax revenue), plus epidemic and crisis-related spending, the budget deficit in 2020 will be much higher than expected, while the government previously expected 3 percent. cent less and modest central bank growth. It is a recession of 7 to 9 percent of GDP. The money to cover the deficit must be raised by the Public Debt Management Center (ÁKK): according to its financing plan updated at the end of August, HUF 1,710,000 million more than the original plan must be raised.

The role of households (that is, households) in financing public debt will not be insignificant either; The GDMA expects the stock of retail government securities held by households to increase from HUF 7,766 million to HUF 8,547 million by the end of 2020.

However, for households to buy government securities, they need money that can be spent, and even set aside, invested. There are also signs that this is the case (at least for some households): demand for MÁP Plusz, which offers extremely good performance, declined in the spring, but began to return to normal in late summer.

Of course, household consumption and investment (in government securities) alone will not lift the Hungarian economy out of recession, not to mention that much depends on what the second wave of the epidemic will be and what restrictive measures will be put in place. underway, not only in Hungary but also in Germany, for example. the Hungarian economy is very dependent. In the second quarter, industry performance fell 20.1 percent. Pharmaceutical production was the only one that could grow, with the production of road vehicles the one that decreased the most.