Money, money, and more money

There will be a lot of money available for Hungary to reboot its economy in the current financing cycle of the European Union, but it must be spent wisely, financial journalist Csaba Szajlai writes in Hungarian newspaper Magyar Nemzet.

editor: REMIX NEWS
author: Csaba Szajlai

Hungarian economic growth could reach 5 to 6 percent this year and 6 to 7 percent next year. This is not what just mandatory official optimism from the Ministry of Finance and the government, which are both counting on a modest expansion, but these forecasts come from Fitch Ratings’ latest credit analysis for Hungary. At the same time, the handling of the recession in Hungary proved that the country’s economy is crisis-proof, and this fact could serve as the basis for recovery and expansion.

But we must ask the question: what is needed to achieve such spectacular growth after the global economic crisis of 2020?

The answer is very simple: money, money and more money. Of course, within reason. While jumpstarting growth is the most important thing, the budget should not be overburdened. Before we look at the source fund inflow this year and in the years to come, let us look at the status quo. As things stand, we were able to close last year with a decline of roughly 6 percent, with previously well-performing sectors — industry, including manufacturing and retail — returning substantially to pre-crisis performance.

According to data from the Central Statistics Office, only the service sector has not yet recovered. Last year’s unemployment indicators are already available, and apparently there is no bigger problem in this area than in other European countries. The unemployment rate is just over 4 percent, which is not a bad number even in times of peace. Given that about 4.5 million of us work, this indicates that the economic shock caused by the coronavirus has not sent the domestic labor market in free fall. And there are signs that wage dynamics have persisted. Despite last year’s difficulties, average wages have risen above inflation.

At the same time, the coveted expansion in the field of economic policy can be expected primarily through investment promotion measures. Here, the goal cannot be anything less than restoring the economy to a pre-crisis investment rate of over 25 percent. What we do know is that the government will strongly support construction and family investment, and wage growth will continue, albeit not at the pace before the crisis until the recovery is fully underway.

Onto a slightly different topic.

It is well known that in the previous year that Hungary and Poland withdrew their veto from the EU budget, so overall, EU funds will give the economy a half to 1 percent growth. From this approach, three factors remain the most important for Hungary, which include the protection of families, stimulating the rural countryside, and the protection of jobs. But with the inflow of EU money here, more emphasis will be placed on greening the economy and digitalization. In addition, we have set national economic and strategic goals in which energy, green transformation, education and, of course, health care have a place.

In addition to the above-mentioned sources, about 50,000 billion forints will be available for state economic development purposes in the period between 2021 and 2027. We are talking about such amounts of money we have never seen before. For those who may not be involved in everyday economics: the figure in question should be seen as Hungary’s full-year economic performance. That is, it is 100 percent of one year’s GDP! According to current calculations, 30 percent of this is from the European Union and 70 percent from domestic and other sources, not to mention other money market sources, such as Hungarian foreign currency bond issuance, bank loans and foreign working capital.

Speaking of developments, of course, the golden rule must be followed that every forint spent will result in the production of more than one forint of GDP. Incentives for investment meet this criterion. As mentioned, based on government communications, public investment in 2021 and 2022 will focus on public construction investment, and family investment will focus on home renovations and new housing construction. In other words, in the coming years, construction will play a major role in the economy, and as a result, one of the most important areas of industrial policy will be construction and the related production of raw materials for construction.

The above, essentially budgetary elements are likely to be supported by monetary policy again this year. Moreover, there will be even closer coordination between monetary and budgetary decision-makers, and so-called asset purchases, such as government securities purchases, will be even more targeted. In other words, the central bank incentive will be maintained, meaning that the bank will not fill gaps but subsidize investments that turn to yields.

The main point is that in the period between 2021 and 2027, about 50,000 billion forints will be available. So, there is plenty of money, but it must be spent wisely.

Title image: The National Bank of Hungary. (source: Wikimedia Commons)


.

tend: 1669561248.7391