The IMF has released a terrifying prediction: what will happen to Hungary?

The crisis is far from over. Although the world economy is beginning to recover from the collapse due to the spring closures, employment, for example, is still significantly behind the pre-crisis period. In addition, the labor market has become more polarized, and low-income youth and women are more affected by the crisis, according to the latest IMF World Economic Outlook (WEO) report.

The IMF also notes that the poor are falling even lower and nearly 90 million are expected to fall into extreme deprivation this year. And the recovery from this “blow” is expected to be long, uneven and highly uncertain, so it is very important that the authorities do not prematurely withdraw support for fiscal and monetary policy, emphasizes Gita Gopinath, economic adviser and director of research. of the IMF.

The well will be deep

The IMF continues to predict a deep recession this year. Although global growth was boosted by 0.8 percentage points from its June forecast, it still expects a 4.4 percent contraction in the world economy this year. Next year, this may be followed by a 5.2 percent expansion, which is 0.2 percentage point slower than expected in June.

In both developed and developing and emerging economies, economic output will remain below 2019 levels this year. China is an exception to this, where economic output could hit 2019 levels this year. Countries whose economies are based on personal contact services and oil exporters can expect weaker growth than economies based on manufacturing, notes the IMF.

Hungary goes into a deeper well

In Hungary, under the baseline scenario, the IMF expected an additional 3.1 percent drop in April this year. This nearly doubled to 6.1 percent in October. (The German economy, which is important to the Hungarian economy, will produce a similar drop this year – ed.) Next year, according to the IMF, the Hungarian economy may grow 3.9 percent, compared with the expected growth of 4.2 percent in April. This rate could be reduced to 2.6 percent by 2025.

According to the IMF, inflation in Hungary may be 3.6% this year, 3.4% next, 1.6% in the current account this year, 0.9% next and the unemployment rate it could be 6.1% this year and 4.7% next. . By 2025, IMF analysts expect average annual inflation to be 3.0 percent and the current account deficit 0.5 percent of GDP.

In terms of growth, most of the Visegrad countries are sinking into a similar trap. The Slovak economy, for example, could fall 7.1 percent this year, followed by a 6.9 percent recovery next year. In the Czech Republic, there may be a 6.5 percent decline this year, which could be offset by 5.1 percent growth next year in the Czech economy. Among the V4s, Poland may have the smallest decline this year, at 3.6 percent, and based on current data, it appears that next year, among the Visegrad countries, the Polish economy alone will be able to offset the decline in this year, following a 4.6 percent expansion next year. according to.

By the way, compared to this year’s data, the IMF did not change only the Czech growth in the case of V4s compared to the April forecast. It worsened 0.9 percentage points in the data for Slovakia this year, while it improved 1 percentage point in the data for Poland.

The standard of living is falling dramatically

Income disparities between developed, developing and emerging countries (excluding China) will worsen due to the epidemic. As a result, the IMF has improved the outlook for advanced economies this year to -5.8 percent, which could be followed by a 3.9 percent expansion in 2019, while growth in developing and emerging markets (excluding China) stands at 5.7 percent, which is worse. than in the previous forecast. This could be followed by a 5 percent increase in 2021. For this reason, the cumulative growth of per capita income in the developing and emerging region (excluding China) in 2020-21 is expected to be lower than that of advanced economies. .

According to the IMF, the impact of this crisis will be felt even in the medium term, as the labor market is slow to recover, investment is held back by uncertainties and balance sheet problems, and a drop in education destroys human capital. However, after the recovery in 2021, global economic growth could gradually slow to 3.5 percent in the medium term.

noted the IMF Director of Studies in his comment on the report.

The uncertainty is true

The forecast is surrounded by significant uncertainties regarding downside and upside risks. The IMF notes that if the epidemic situation worsens and the chances of treating the disease and the vaccine deteriorate, it will also have a very serious impact on the economy, which could be exacerbated by severe turmoil in financial markets. Growing restrictions on trade and investment and growing geopolitical uncertainty also threaten the recovery.

On the contrary, if tests, treatments, vaccines and government incentives are available more quickly and more widely, they can significantly improve prospects.

Tax subsidies applied so far have approached $ 12 trillion globally, extensive interest rate cuts, liquidity increases, and asset purchases by central banks have helped lives and families. livelihoods and have averted financial catastrophe.

I need more

However, even more is needed to ensure a lasting recovery.

• Greater international cooperation is needed to end this health crisis. The IMF estimates that if treatments could be made available faster and more widely than in the baseline scenario, it could mean a nearly $ 9 trillion increase in global income by the end of 2025, increasing income and reducing income disparities in all the countries.
• As far as possible, the economic policy instruments used should focus on mitigating the economic damage of the crisis. Governments must continue their income support programs with well-targeted cash transfers, wage subsidies, and unemployment benefits. Large-scale bankruptcies must be prevented and workers must be able to return to productive jobs, and support for vulnerable but viable businesses should continue, where possible, through tax deferrals, credit moratoriums, and capital injections of the kind. social capital, stresses the IMF.
• As the economy strengthens, regulations should also help the flow of labor from long-term contracting sectors (such as travel) to expanding sectors (such as e-commerce). Workers should be assisted in this adjustment through income transfer and recycling. In addition, it is necessary to accelerate bankruptcy and resolution processes to prevent companies from becoming insolvent. In an environment of low interest rates and in times of great uncertainty, it is necessary to boost green public investment, as the IMF says it can significantly increase employment and accelerate the recovery, while taking important steps to reduce emissions of CO2.
• Developing and emerging countries must manage this crisis with fewer resources, as many of them already had high debt and borrowing costs have increased. These countries still need international grants and concessional financing and, in some cases, even debt relief. In countries where debt is unsustainable, it is necessary to restructure it as soon as possible in order to free up resources to face the crisis, emphasizes the IMF.
• Furthermore, economic policies must focus on putting the economy on a stronger, fairer and more sustainable path. Global monetary easing must be accompanied by measures to avoid increased financial risks in the medium term, and the independence of central banks must be preserved at all costs. Fiscal spending and economic collapse pushed world sovereign debt to record levels of 100 percent of world GDP. While the expected recovery in a low interest rate environment in 2021 could stabilize debt levels in many countries, all of them could benefit from a medium-term budgetary framework that provides confidence that debt will remain sustainable. Governments say the IMF will likely have to increase taxes in the future as well, but at the same time it must also ensure that companies receive their fair share of tax payments and reduce unnecessary cash flows.
• Investments in health, digital and green infrastructure and education can help achieve productive, inclusive and sustainable growth, says the IMF, which also proposes to strengthen the social network to protect vulnerable groups.

This is the worst crisis since the world crisis of 1929-1933. Getting out of this well will require significant innovation on the national and international regulatory fronts, Gopinath said in a comment on the report, adding:

He explains the latter with an unprecedented international response to the crisis, mentioning the EU recovery fund and the use of digital technology in social assistance. In addition, he notes that the IMF has also provided financial assistance to 81 member states at record speed since the outbreak began.