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The last 10 years have been enough to prepare for another crisis, Mihály Varga said at this year’s Meeting of Roving Economists. The finance minister spoke a day after György Matolcsy, who urged a competitive shift in his presentation, but seemed to have forgotten to mention a few things about his current economic woes. But not only did he forget to communicate this to the public, but also that the central bank carried out a covert interest rate hike around the same time as his speech.
Thus, according to Varga, the current crisis has hit the country in a better state than in 2008: he mentioned as an example that in 2008 it had 3.8 million employees, now 4.5 million, but the public debt in the hands of foreigners has also decreased .
About this year, he said that it still managed to grow in the first quarter, while several European countries were already struggling with economic difficulties before the coronavirus crisis (the first quarter lasts until March, when the coronavirus appeared in Europe). Everyone’s GDP had already fallen in the second quarter, but “we were a little better than the EU average,” he added. (Which is mainly because some countries with heavy rains have lowered the average, we are no longer that good in terms of order of countries – one ed.)
According to Varga, our problem with the statistics is that they have a delay of 45 days, so the Department of the Treasury has created a weekly economic indicator from Google searches, the ecosystem and online billing data, among others, for better monitoring. the current state of the economy.
According to the Finance Minister, we have come across various wrong assumptions in economic circles in the recent past: “Some people said that Hungary will increase even if they all decrease,” he gave an example, clearly telling György Matolcsy, the central bank governor . “Many say the predictions of the Treasury Department.” With this, he clearly referred to the MNB inflation report released yesterday, in which the central bank now expects a similar drop to the ministry’s for 2020, rather than an increase. Matolcsy was also told the other “wrong prediction” that there would be a V shape, that is, a rapid rebound in the economy. In contrast, “in recent weeks, we can see that the curve has started to flatten out,” Varga said, suggesting that experts expect slower growth after the rapid decline. Now also at the central bank.
The Minister of Finance highlighted:
What has been our advantage in recent years has now become our disadvantage, the automotive, hospitality and service sectors are also suffering.
“We were also attracted to the fact that the Hungarian economy focused on these sectors, which is an important lesson for the future.”
Regarding the hospitality industry, he also highlighted the need for a new strategy in certain areas: p. Eg In the case of Budapest, as “foreign tourists have supplied the capital so far”, but if they continue to lag behind in the future, the hotels in the capital will be in a very difficult situation. Meanwhile, the field, thank you very well, it’s fine, said Varga.
The good news, however, is that the number of unemployed has dropped in recent weeks, but Varga said it should not be overlooked that many companies are still struggling with labor shortages. As an example, he said that he signed cooperation agreements with five food companies on Thursday, but “all complained about the labor situation, no matter where in the country they work.”
According to the Minister of Finance, although it has been a good achievement that we have been able to reduce the level of public debt in recent years,
Due to the current crisis, we may go back up to 5-6 years in terms of debt reduction.
“But that is the necessary price,” he said, so the prime minister estimates that public debt could be between 76 and 78 percent by the end of the year, while the general government deficit is expected to be between 7 and 9 percent.
With this sacrifice, according to Varga, the government programs that were introduced to prevent the crisis will be financed. He described as important that in addition to institutional investors, the population also appeared in the financing of public debt, and in fact, in recent weeks, “it is still very well spent” in the government securities market. This is one of the reasons you are optimistic about Moody’s credit rating tonight.
Varga also spoke about the fact that Hungary spends an exceptional amount on crisis management in proportion to GDP at the EU level, as 900 billion HUF has been invested in the economic protection fund and 400 thousand has been allocated. million additional HUF for measures against the epidemic.
We would just add to this:
According to Varga, it should not be hidden that significant resources have been reallocated from EU funds. Compared to the other member states, Hungary was more advanced in the use of funds (at least the state distributed the subsidies in advance), so what used to be an advantage turned into a disadvantage today as it could be reallocated less money, but “400 billion HUF went to economic protection anyway.”
Social attitudes have changed
– said the Minister of Finance, who said that although the virus was clearly enemy number one in spring, we had already seen in autumn that, although it was still an important aspect, it had become secondary. The first today is the loss of a job, or in the case of companies, the fear of bankruptcy. That is why we need to relax economic policy, we need to be equipped to live with the virus.
Consequently, according to Varga, the deciding factor may be the second quarter of 2021: until then, it will be decided whether a large quantity of vaccine is available. If there is not yet, a longer crisis is to be expected, in which case “much more moderate growth or stagnation will be fixed.”
What can I promise? As Minister of Finance, this fiscal policy will continue to be an incentive, ”he stressed, adding that the country has reserves that are still available and that EU funds can be accessed. According to him, the EU’s approach has also changed, since while previously the issue of how to maintain the budget deficit of 3 percent was discussed at each finance ministerial meeting, today it seems that the majority will not be able to do so. (The EU does not expect this this year or next). “We will not be against it if we have more room for maneuver,” said Varga, who said there would be a much smaller deficit next year, close to 3 percent.
In relation to this, he said that due to the crisis, the Finance Ministry currently estimates that the state’s revenue will be HUF 1.4 billion less.
To reduce the deficit, increase foreign and national investment – increase the business support program for the latter – “we must maintain the cost advantage, so we are preparing measures that will continue to see Hungary as an investment destination.” In this sense, he was optimistic, as he said: the investment portfolio heading to Hungary was not moving.
According to him, the lower corporate tax rate of 9 percent at the EU level is still a competitive advantage, but the business tax can no longer remain in this form for long. (The latter, since it is not calculated on the basis of profits but on the basis of income, can significantly increase the tax burden of companies). According to Varga, a “moderate level” is needed, since local governments also have the advantage of formulating local taxes so as not to rule out investment. (In relation to this, it’s worth noting that the state has continually taken away local government revenue in recent years, the business tax has essentially remained the last major revenue of its liquidation, so cutting it may meet resistance: to ed.)
The finance minister said it should catch up with pre-epidemic performance in 2-3 years, adding that “we hope the world will be a partner in this too.” We can moderate the economic recession if digitization and robotization spread as much as possible in the Hungarian economy: Varga re-voiced the old mantra.
And what to expect in the future? Here, she reiterated that a lot depends on when the vaccine is available, “when you can watch a soccer game with more courage.” But we also have to keep taking steps to improve competitiveness, as “we are strong in theory, weak in construction,” back to Matolcsy, who proposed a change in competitiveness on Thursday.
Varga, who said that the healthcare industry will be more valuable in the future, would also change the growth structure, so that not to be left behind, the state has launched a “serious healthcare industry program.”
At the end of the presentation, the Minister of Finance received a bottle of wine from Éva Hegedüs, Secretary General of the Hungarian Economic Association, President and CEO of Gránit Bank, whom she thanked with a fist.
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