After an exceptionally convincing GDP growth last year, Hungary’s economic output, due to the coronavirus pandemic, has started nosediving. Opinions on the exact extent of the downturn are divided- many consider the government’s prediction to be too optimistic, while the central bank governor believes that the significant growth rate Hungary had seen before could be maintained.
The Hungarian economy grew by 4.9% in 2019. It was the second fastest pace in the EU after Malta, almost 3.5 percentage points faster than the EU average of 1.5%. While in early 2020, the Orbán administration predicted a moderate decline in growth rate due to the Covid-19 pandemic, at the end of April the Ministry of Finance started talking about a 3% fall, even deeming a decline of around 5% conceivable.
This figure however, still seems to be rather cautious given external estimates.
The European Commission, for example, forecasts a 7% slump in Hungary’s economy this year. Although the virus has spread only to a limited extent in Hungary, this year’s economic performance would depend on domestic economic policy decisions, the EC said. If the EC’s prognosis turns out to be true, it would be felt by almost everybody in the country.
It was not the EU that gave the most shockingly pessimistic prediction, but László Parragh, President of the Hungarian Chamber of Commerce and Industry (MKIK). The economic expert considered by many to be an unofficial economic adviser to Viktor Orbán, said in a recent interview with daily news Népszava that he expects the economy to significantly decline and would not be surprised if this year’s GDP fall would be in the double digits.
But the government expects a much more moderate decline compared to this.
The Finance Ministry on Tuesday submitted an updated convergence program to the European Commission that envisages a 3% GDP contraction in 2020 in light of the coronavirus crisis.
Coronavirus: Finance Ministry Sees 3 pc GDP Contraction in 2020
However, several economic experts found the government’s expectations overly positive.
Western European countries, without exception, expect an economic downturn of 5-7%, which compared to this an “optimistic prediction seems particularly unjustified,” Péter Ákos Bod, former governor of the National Bank of Hungary, said to news site Magyar Hang. Although we do not yet know the course of the crisis, as it is not known how long the epidemic will last, based on the currently available data, it seems much more likely that the Hungarian GDP will fall somewhere between four and eight percent, he added.
Even Finance Minister Mihály Varga admitted to Reuters a few weeks ago that Hungary’s economic contraction could easily be deeper than the government’s 3% projection, while also adding that current budget deficit goal of 3% per GDP is “not carved in stone.”
“Our estimate for a 3% recession was made in the second half of March and was based on the assumption that we can start coming out of the epidemic in the second quarter,” Varga said in the interview.
However, the government does not seem to be the most optimistic about the economic output of the country.
The National Bank of Hungary (MNB) will protect the country’s achievements of the past ten years, central bank governor György Matolcsy said in an interview with newswire MTI, insisting that the Hungarian economy was “on the brink of great opportunities.”
The level of uncertainty in the global economy makes it hard to predict economic developments, Matolcsy said, adding that the central bank’s package of measures aimed at mitigating the economic fallout of the novel coronavirus outbreak and the government’s stimulus measures, gave Hungary a sound basis for maintaining a growth rate that is 2-3 percentage points above the European Union average. “We continue to believe that the Hungarian economy can achieve a V-shaped recovery,” he said.
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