It is increasingly difficult to believe that Hungary is crisis-proof: according to the IMF, a speedy recovery could be a dream

In the spring, we still brag about the IMF forecast

Hungarian GDP is expected to fall 6.1 percent in 2020 instead of the 3.1 percent previously expected, according to the IMF’s World Economic Outlook (WEO) report released on Tuesday. Until now, the organization has been the most optimistic about the Hungarian economic outlook, but now, depending on the data available since then, they have “adapted” to market expectations.

In addition to the larger-than-expected drop, the IMF also raised its inflation forecast for this year, with a 3.7% deterioration in money expected by the end of the year. In addition to the larger drop in GDP, it is partly natural that Hungary’s external position may be worse, this year’s balance of payments deficit may reach 1.6% of GDP, but even in 2021 it may be close to one%.

The table shows that the IMF also expects a larger than expected shock to the Hungarian labor market, and has revised up its unemployment forecast this year and next. According to the organization’s economists, we will see unemployment above 6% in 2020, and then it will decline to just 4.7% next year. According to the latest CSO data, unemployment was 4.6% in the second quarter, that is, if the IMF estimate is confirmed, another wave of layoffs could come.

Incidentally, the recent IMF forecast does not stand out, as the government is already talking about a 5-6 percent decline in GDP, and recently the MNB has significantly worsened its estimate. That is to say

today, roughly this 5-6 percent forecast seems to be accepted by the majority.

The MNB tends to summarize recent expectations in its quarterly inflation report. The last such post was published in late September, which is relatively recent. It also shows that the IMF’s now-worsened forecast is not out of line, but perhaps only the OECD is more pessimistic about the recovery next year than the IMF.

By the way, the GDP forecast for 2021 was lowered by just 0.3 percentage points compared to spring, so now a 3.9% increase is expected. However, this actually suggests significant pessimism, as if the IMF had lowered this year’s forecast due to a larger-than-expected shock, the forecast for 2021 could have automatically moved due to the lower base. The fact that this did not happen indicates that the IMF has become much more pessimistic about the speed of the recovery.

From the top of Europe to the middle ground

In April, we still boasted that in the whole of Europe only Serbia could swim the year 2020 with a slight decline for us. The government has often made this statement to support the resilience of the Hungarian economy. Now, however, the situation is no longer so favorable, and the opinion of the Monetary Fund is not particularly optimistic in the region either.

The chart also shows that the 6.1% economic slowdown this year would be average in the region, but in 2021 the IMF expects the weakest recovery in Hungary.

And if we look at how the growth outlook has changed compared to the April WEO report, the outlook is even worse from our point of view. While the Hungarian forecast worsened by 3 percentage points in six months, apart from us, the forecast only worsened in Slovakia, but also in our northern neighbor by only 0.9 percentage points. On the other hand, the prospects for Slovenia improved by 1.3 percentage points and those for Poland by 1 percentage point.

In other words, Hungary’s relative position within the region worsened greatly.

There may be several reasons for this, sadly there is no textual analysis in the IMF post. Most likely, the performance of the economy in the first half of the year has more than exceeded our expectations for spring, that is, the model was updated with the real data known since then. Another possible explanation is the labor market, since, as mentioned, the IMF has raised its estimate of Hungarian unemployment, while in Poland and the Czech Republic, for example, a similar forecast has dropped from 8-9% in April. 3.4%.

If we look not only at the region, but at the whole of Europe, it compares with April

only the Spanish, British and Maltese outlook deteriorated to a greater extent than the Hungarian.

And if we add the perspective of 2021, only the economic growth of the Scandinavian countries can be more restricted than that of Hungary. And the IMF expects a much smaller drop for them this year.

In other words, the most important message from the IMF is that while the Hungarian economy does not appear to be particularly vulnerable in the crisis, we may be lagging behind most of Europe in the recovery.

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