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In recent days, there has been a sharp correction in several asset markets. The great fear is that economies will go downhill again and will not receive economic policy help. I think the first fear is justified, but the second is not, said investment specialist Viktor Zsiday.
Politicians were stunned by the calm of the summer virus, believing that since they had already defeated the virus in the spring, it would be enough to react if problems arose again. In many places, they weren’t able to defend even the most basic of things, causing the numbers to skyrocket in recent weeks (and if it is true that the virus is seasonal, we are in even bigger trouble than we thought).
This is especially true in Eastern and Central Europe, where due to apparent success, both the population and politicians believed that the problem was frivolous and easy to deal with, and in the summer they completely abandoned defense. We will drink its juice now and pay the expected price for half a year.
This will have clear economic consequences, the economist wrote on his blog. But this is difficult to handle, because if the population is afraid, the economy will shut down, even if there is no centrally ordered shutdown. And if consumer spending and confidence drop, they will snowball through a number of industries, especially in the service sector, which is often tied to people. So the economic problems could be real in the coming months (type W recession).
Will it be big enough?
However, the fear that there is no stimulus is probably unfounded. If the problem is big enough, then, without other means, governments will join forces with central banks to solve another rampant money-funded fiscal run rampant. The United States is almost certain that it will be able to do so, but Europe is likely to do so to a lesser extent and late due to political divisions. Because of this, the current dollar correction is likely only temporary.
The fate of equities is a big problem, the economic recession is negative, the (expected) spread is more positive and, while the euphoria was felt in late August in some sectors (especially technology), others are very cautious , so the situation is not clear to me, although probably the end of 2020, the beginning of 2021 will offer favorable entry points, believes Viktor Zsiday.
In Hungary, meanwhile, we are clearly on the Swedish path, not in terms of GDP per capita, but in the government pushing virus protection against the population. However, as in the case of the Swedes, the result may be that the population is really scared only when there are enough dead, but then permanently. This paints a rather dark picture, both in health and in the economy, for the coming months, as public confidence could fade for long months if the epidemic becomes large enough and then slowly recovers, the sad forecast sounds.
The poor economic outlook is particularly problematic for the MNB’s exchange rate policy. In recent years, the forint exchange rate curve has started to resemble that of the Turkish lira a few years ago. The problem with this is that if it lasts long enough, everyone will notice that the country is following a policy of constant exchange rate devaluation and after a while the population will start saving their savings in “hard” currency instead of their own. play money. ” However, due to dollarization / euroization, the central bank may lose some control over monetary policy in part, and the weakening of the forint may reinforce itself.
Slowly, Hungary has to decide whether it wants a stable currency or let the population switch to the euro on their own after losing confidence in the forint.
– believes Zsiday
The MNB is not in an easy position, shooting for many purposes at once. In a bad analogy: it’s like circus turntables that, as they spin more and more turntables, they are more and more likely to fall. Especially if there is a minor earthquake in the meantime, and now there is. It is doubtful that the MNB is fundamentally willing to change its “high pressure economy” economic policy on the basis of historically low real interest rates and a weakening currency. It is a divine fortune that a ton of money from the EU budget and the NextGeneration package once again provides Hungary with such a serious reaction from mid / late 2021 that it could disguise the processes, even without a change of direction. Until then, however, a lot of water will flow down the Danube, the economist believes.
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