The International Monetary Fund now projects that Hungary’s economy will contract by 6.1% this year, while it forecasts 3.9% growth for 2021 in its latest World Economic Outlook.
The IMF downgraded its prediction from 3.1% contraction for this year and 4.2% growth for the next in its last Outlook released in April.
While greater contraction is in line with how forecasts for most other countries have changed, especially regionally, slower growth is not. Prospects for growth in 2020 were lowered almost across the board. For the Euro area, for instance, a predicted contraction of 7.5% for this year was replaced by 8.3%. A notable exception to this globally is the North American region. On the other hand, growth predictions for 2021 are generally slightly higher than previously. For Europe as a whole, the IMF previously forecast an expansion of 4.5%, whereas now this number is 4.7%.
Although a predicted contraction of 6.1% for Hungary is quite severe, it is not uncharacteristic for the region; in fact, it is a little low. The IMF forecasts that the Slovakian economy will shrink by 7.1%, the Czech by 6.5%, and the Austrian and Slovenian by 6.7%. Indeed, what is surprising is that uniquely among the Visegrád Group, the Polish economy is only predicted to contract by 3.6% this year.
A 6.1% decline in economic activity for 2020 is in line with other estimates; it is around the middle of the range put forward by the National Bank of Hungary, while it is slightly higher than where the Ministry of Finance put it but lower than the European Commission’s forecast.
More alarming is the slow recovery anticipated by the IMF. The Slovakian economy is expected to rebound by 6.9% next year, while the Czech is set to grow by 5.1%. Slovenia’s economic activity is estimated to increase by 5.2%. Only Austria isn’t predicted to be better off than Hungary by the end of next year with 4.6% growth in 2021 on top of a greater downturn.
If the IMF is right, it would be especially unfortunate in light of the recent words of the governor of the Hungarian central bank, György Matolcsy. In a recent article, Matolcsy wrote that Hungary needs a rapid recovery and strong growth after the dramatic way the 2020s began. Whether it is able to accomplish this will make or break the country’s next decade. If successful, Hungary could catch up to the EU’s average level of development by 2030, he asserted.
Apart from this, the IMF foresees Hungary’s unemployment rate reaching 6.1% this year, then decreasing to 4.7% the next, up from 5.4% and 4.0%, respectively. Since the IMF notes that national definitions of unemployment differ between nations, and the IMF does not harmonize these metrics, there is no adequate basis for comparison in this category.
The IMF also expects Hungary’s current-account deficit to grow to 1.6% of GDP this year.
In the featured photo illustration: IMF managing director Kristalina Georgieva-Kinova. Photo by MTI/EPA-KEYSTONE/Alessandro Della Valle