Coronavirus’ Brutal Economic Impact in Hungary Already Felt
Péter Cseresnyés 2020.03.20.
While the novel coronavirus epidemic in Hungary has just begun, the economic impact of the pandemic can already be felt. Tourism has become non-existent, the automotive industry, strategically the most important sector in the country, has come to a standstill, the hospitality industry is in ruins, and smaller shops that don’t sell food are struggling for survival. While the government expects the unemployment rate to jump to shocking hundreds of thousands, according to some estimates, if the current situation persists for a prolonged period, this number could easily be in the millions.
Many say that the economic shock caused by the coronavirus could push the global economy even deeper than the 2008 global financial crisis. In addition, this time, due to the strict measures introduced by most governments in an attempt to curb the spread of the pandemic, almost all economic sectors are affected at the same time. That is why the Hungarian government has also introduced firm economic steps. And those will have a serious impact on the banking system and the central budget.
This week, the government has decided to suspend the capital and interest rate payment obligations of individuals and businesses until the end of the year. Also, certain loan repayments are also delayed this year, including baby bonds and student loans. New special rules now apply in the tourism, hospitality, entertainment, and film industries, as well as in the gambling, performing arts, events, and sports sectors. PM Orbán said those were just the first measures and more will follow.
As a result of the virus and the introduced measures, the forint exchange rate hit a record low several times this week.
The first sector to be devastated by the virus in the country was tourism. The situation of Hungary’s tourism has never been as dramatic as it is now due to the coronavirus epidemic, said the CEO of the Hungarian Tourism Agency. According to Zoltán Guller, tourism in Budapest will practically stop by Easter.
In addition to tourism, other areas of the hospitality industry have also been hit hard. After the government introduced that pubs, cafes, and restaurants could only be open between 6 am and 3 pm, many places have already closed their businesses due to the steadily declining traffic. (Food delivery is an exception, as restaurants can still make take-away food after 3 pm, they just can’t receive costumes inside the facilities).
The only positive increase is with grocery store sales and food delivery- everywhere else is in decline.
Passenger transport is also experiencing great difficulties. For example, many taxi companies in Budapest reported a significant drop in the number of passengers- so much so, that many of them will have to suspend their work for a longer period of time.
Many car manufacturer companies announced this week that due to the spread of the coronavirus, and the decreased sales and uncertainty in car parts supplies, production will be temporarily suspended. Audi in Győr, Opel in Szentgotthárd, Mercedes in Kecskemét, and Suzuki in Komárom have all made this move.
Related automotive suppliers, such as the Bosch Group, Denso, Continental, and ZF, are equally important regarding the employment and traffic of automotive products.
According to an article on the subject by news site Index, large car manufacturer companies contribute around 5-6% of the Hungarian GDP, and including suppliers and service providers, this easily means around 8-9% more.
However, the most devastating effect of the virus is the emergence of mass unemployment, which can have a snowball effect on all other sectors. The government expects hundreds of thousands of people to become unemployed, and the question is, as Gergely Gulyás, head of the PM’s office put it at his Thursday’s press conference, “how many hundreds of thousands will that be?”
For example, Zsombor Essősy, CEO at MAPI Hungarian Development Agency Corp., writes in his opinion article that the Hungarian unemployment rate could increase even more dramatically in the coming months.
According to Essősy, the main reason for this is that not only the number of job-seekers in Hungary can increase in this situation, but also those Hungarians working abroad might start coming back to the country en masse. In his opinion, the number of those unemployed could rise up to 1 million in Hungary.
Finance Minister: “We are spiraling”
We are spiraling, Finance Minister Mihály Varga told ATV. The Minister said that “I can’t see any country in Europe that could stop this downward spiral. The end of this decline is still not on the horizon.”
Varga emphasized that since the Hungarian economy is very dependant on Germany, the German economy’s decline will also seriously affect Hungary. The Minister hopes that in the last quarter of the year, with the strengthening of the Chinese economy, there will be some turn-around.