The country’s economic performance will be the key issue at the 2022 general elections in Hungary, financial journalist Csaba Szajlai writes in a column in daily Magyar Nemzet. While the Hungarian government and the treasury have faced an unprecedented situation — a pandemic during an economic crisis — the “leaderless opposition” and the associated expert camp are demanding a more active fiscal policy to avoid a downturn.
Decision-makers could counter that the state is not capable of everything, nor does it have enough financial leeway to compensate for lost production. In addition, we live in a market economy, where the market is omnipotent. At the same time, many may be confused by this communication, that is, the one which calls for greater state intervention. On the other hand, the truth is that the key factor in the 2022 parliamentary elections will be the state of the economy, and more specifically, whether there will be growth after normalization. We are looking at these aspects now. Those wishing for even stronger “central stimulus” are likely to forget that the country’s budget had a general government deficit of less than 2 percent in early 2021, when in fact it could have been around 9 percent last year. The reason for this is that unprecedented budget money has started to make the downturn smaller, and the sectors hitting the floor are tiding the hard months with non-refundable subsidies, soft loans and guarantee programs.
Behind the run-off of the deficit is the fact that production has stopped, but public spending has increased. While the gap in the budget needs to be filled, the administration needs to be funded, pensions need to be paid and major investments could not be stopped. In addition to “Kurzarbeit”, the German policy term for reduced working hours supplemented with additional income, they also had to sacrifice job retention benefits. In addition, the financing of rising health care costs due to the coronavirus epidemic has also taken its toll on the budget. It was necessary, on the one hand, to purchase government securities from the central bank and, on the other hand, to involve external sources by issuing foreign currency bonds. Since Hungary is a good debtor, we have no problems in the international financial market either. So much so that we have to pay an unprecedented low yield on our foreign currency bond issued last year. More specifically, Hungary received external sources below half the market price. Those sounding emergency alarms can only be answered with a question: What else could the government have done? There are certain risk factors for fiscal policy. The government has gone as far as it could and sooner or later it will be necessary to bring the deficit and debt back to normal levels based on EU values.
But let’s see what to expect in 2021! Recovery will be certain, although it may not be the quick rebound we hoped for last year, but a more gradual one. However, it is important to emphasize the risks. The forecast for 2021 is perhaps surrounded by greater uncertainty than ever before. It is not yet clear whether the pandemic will end — and if so, how it will end — nor how long the restrictions will hold back a return to normal. Meanwhile, sectors that performed poorly in 2020 — tourism, the auto industry, domestic consumption — must also be returned to competitive position. A big question is also how much permanent damage has been caused last year, and in particular, how many companies have gone out of business and in which sectors the demand for products or services will be permanently lower, or possibly higher. Market, research, and government expectations for economic growth are not far apart. For the most part, everyone is counting on 3 to 4 percent expansion. This also means that the Hungarian economy will not reach its 2019 performance level in 2021, but there is a chance that it will do so in 2022. The good news is that investment, exports and consumption are also projected to grow this year.
Yet, there is encouragement and restraint in the macroeconomic forecast as well. But how does the average man feel about this? Above all, items in the average level of consumption — retail, fuel purchases, small business services, possible restaurant spending and holidays — may increase compared to last year, which could have a beneficial effect on GDP. In the case of the latter, the decline in the past year was caused by restrictions and changing household habits, and the decline in purchasing power may have played a smaller role, as unemployment did not increase drastically. And, perhaps most importantly, overall, there was a decline in investment last year, partly due to a lack of resources and partly due to the more uncertain economic situation.
This year, however, investment can be expected to increase if the economic situation improves and the use of EU funds progresses well. The bad news for the critics of the government’s economic policy is that there will be growth this year. True, this growth will require real work. If, on the other hand, the election will hinge on this issue, one should not be afraid despite the many risks that arise. You just have to go back to the basics for economic growth.