The Grand Summer Reopening

Analysis

The meteorological summer has officially started, the sun is shining, and there are more people in the office than I have seen since before Christmas; for once, the arrival of June feels like a more significant step-change than the coming of spring. We are surely past “emerging shoots” metaphors by now, but the fact that the second reading of the Q1 GDP data was an improvement of the first underscores how resilient the Hungarian economy is. Broadly speaking, the picture looks very promising indeed.

Like most journalists, I am a professional skeptic when it comes to most things, but it is hard not to read the tea leaves positively right now. That said, a dash of caution is no bad thing, for there are still risks out there. To quote British Prime Minister Boris Johnson, who met with Hungary’s Viktor Orbán in London last week, “We’re not out of the woods yet.” Quite so, although he was speaking earlier in the crisis when he said that, and we are most certainly nearer “broad, sunlit uplands” than deep, dank, impenetrable forests.

What are those risks? Let me lay out three for you. Firstly, Hungary has such an open economy that, while being way ahead of everyone else might seem like an attractive prospect, the country desperately needs its trade partners, most especially from Europe, to be doing well enough themselves to sell imports and buy exports. In truth, this is probably the least worrisome of my trinity of threats.

A more real concern is threat number two: that we grow so fast it just fuels inflation, already bubbling away a little above the National Bank of Hungary’s mid-term target of 3%. Credit taken out while the interest rate was close to zero looks less attractive as rates rise. And will households be so willing to spend on large ticket items when the cost of filling the weekly shopping basket is heading north? The central bank has already signaled it is becoming more hawkish and may well be ready to intervene on that front at its June policymakers’ meeting.

The third threat isn’t directly economic at all, although, as we all know by now, it certainly can shut down growth, and that is the coronavirus itself. Hungary has run a remarkably effective vaccination campaign. Whatever you think about the Chinese and Russian jabs (I, for one, have been critical because it is not clear whether these “Eastern vaccines” will be accepted for international travel), adding them to the mix of alternatives offered has certainly speeded things up. That is especially so in the light of problems with the EU’s own procurement plans. All of that said, there do seem to be suggestions from some leading infectologists that further progress, now more than half the population has been vaccinated at least once, will inevitably slow.

Against this, the realization that the first two cases of the Indian variant have been detected in Hungary should give pause for thought. Our third wave was driven by the arrival of the more transmissible Kent variant from the United Kingdom. Although the data is not yet conclusive, this Indian mutation may be more virulent still and has already supplanted the Kent strain in parts of Britain as the dominant form of the coronavirus. Some U.K. scientists are sufficiently worried to be warning of a potential new wave there and urging the British government not to further ease restrictions this month.

The message seems clear to me; to protect human health and economic livelihoods, the vaccination campaign has to continue among the younger cohorts and the skeptics (and for once I am not one, in this case). Perhaps even more so, we need to ensure developing nations get fair access to vaccinations as quickly as possible because we really are all in this together.

Robin Marshall

Editor-in-chief

This article was first published in the Budapest Business Journal print issue of June 4, 2021.

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