An impressive recovery, but is this economic performance sustainable?
Prime Minister Orbán, President of the Central Bank György Matolcsy and Minister for National Economy Mihály Varga appeared together this week at an event hosted by the Hungarian Chamber of Commerce and Industry. Recent weeks have brought a good deal of upbeat economic data related to 2015, so there was plenty of reason to be bullish on 2016.
The latest report from the European Commission had good things to say about Hungarian economic policy, joining an optimistic IMF and another positive outlook from the OECD. The Commission’s report cited the reduction of the government budget deficit and a decrease in state debt levels as key factors contributing to encouraging economic conditions. The report also praised Hungary for the phasing out of the household foreign exchange loans. By restructuring loans to be based on the local currency rather than subject to unpredictable currency fluctuations, consumers can plan on predictable monthly payments. Ultimately, consumers won and their monthly payments have been reduced.
In addition, according to the latest data, Hungary’s debt-to-GDP level fell to 75.3 percent at the end of last year, while GDP growth reached 2.9 percent – well above the 1.8 percent EU average.
So the questions raised at the Chamber event by three of Hungary’s most important government decision-makers concerned sustainability of these indicators. Prime Minister Orbán spoke of more ambitious goals, saying that the country’s GDP growth should be higher than 3 percent and the debt should be reduced even further, not just compared to the GDP but also nominally.
Ultimately, a country that lacks natural resources, PM Orbán explained through a joke, has to expand its labor market: those who are not yet part of the public work scheme, and not part of the active labor force, should be guided back to employment.
Speaking before the prime minister, Central Bank President György Matolcsy had more good news to highlight: a record-low base rate and the Central Bank’s program to provide loans to SMEs. According to Matolcsy, one of the keys to Hungary’s economic success is the cooperation between the government and the Central Bank, “which many don’t like, but we like it.”
Minister for National Economy Mihály Varga underlined the contribution of strengthening the industrial production sectors. This goal is built around Hungary’s strongest industries: automotive manufacturing and parts, specialized industrial machinery, and electronics. Additional areas that will be targeted for further development include healthcare, tourism, food production, agriculture, and information technology.
Some of these goals sound ambitious but no more ambitious, ultimately, than the priority goal back in 2010, which was to reverse the harmful effects of eight years of nightmarish mismanagement of the economy and to restore stability. Back then, the odds were against us much more than today. Betting on Hungary’s continued success has become a much safer bet.