While the economic effects caused by the coronavirus pandemic could not be observed in the February industrial output data, COVID-19 will surely have a devastating economic impact in the near future. In order to ease such shocks and fuel the re-launch of the economy, Viktor Orbán’s government has created an economic package that takes actions on several fronts, including job protection and wage subsidies, rechanneling 18-20% of GDP for the purpose.
Although there are no official estimates by the government of the extent to which Hungary’s economy will shrink due to the pandemic-inspired crisis, Prime Minister Viktor Orbán’s cabinet has come out with a three-stage economic protection plan. The first phase had already been introduced; the second wave of measures were just revealed on April 6-7.
The new steps include a wage support scheme, reintroducing 13-month pensions, restoring highlighted sectors of the national economy and granting more than HUF 2 trillion in loans with interest subsidies or state guarantees to companies.
The first stage of the three-step plan, introduced mid-March, involved a reduction in social security payments, help offered to those paying KATA simplified business tax and the suspension of bank loan repayments.
The second set of steps consists of five elements, with the government reshuffling 18-20% of GDP in order to execute them, the prime minister said on April 6 when he introduced the measures.
That means the government must deviate from the 2020 budget given the changed circumstances and raise the budget deficit from 1% to 2.7% of GDP this year, Orbán said.
The goal of the economic protection action plan is to create as many jobs as will be wiped out by the coronavirus, the prime minister said. The first of the five measures now introduced aims at preserving jobs, he said.
In order to do this, the government will subsidize the wages of employees whose working hours are reduced, representing a special Hungarian form of wage support, Orbán said.
Another part of the program concerns priority sectors of the national economy which will have to be restarted. These include tourism, the health industry, the food industry, agriculture, the construction industry, logistics, transport, the film industry and the creative industry.
In order to provide funding for businesses, there will be interest- and guarantee-subsidized credit facilities made available to Hungarian businesses to the total value of more than HUF 2 tln. For job creation purposes, the government will support investments with some HUF 450 billion.
The program also contains measures protecting families and the elderly, so the government will reintroduce the 13-month pension in four instalments, Orbán announced. As a result, in February 2021, in addition to the January pension, pensioners will receive an extra week’s pension, with the same arrangement repeated in 2022, 2023 and 2024.
Altogether, a total of HUF 9.2 tln forints will be available in the years ahead to mitigate the economic effects of novel coronavirus in Hungary, with an emphasis on protecting the labor-based economy, Minister for Innovation and Technology László Palkovics said a day after Orbán’s announcement, revealing further details of the plan.
The government will take over 70% of the wage costs of employees who work reduced hours at companies affected by the coronavirus pandemic, for a period of three months. Engineers and researchers will get 40% salary coverage from the government.
Palkovics also said that HUF 2 tln in subsidized credit and HUF 500 billion in state guarantees will be made available to struggling businesses. A further HUF 600 bln will be allocated to the tourism sector.
The National Bank of Hungary (MNB) will also look to do its bit. Governor György Matolcsy announced that the Monetary Council of the MNB will provide a total of HUF 3 tln in fresh funding to protect the financial system, about 6% of this year’s GDP.
The central bank will reintroduce its Funding for Growth scheme, called NHP Hajrá, through which it will allocate HUF 1 tln, together with HUF 500 bln in the Funding for Growth Fix scheme. Commercial banks will receive an additional 4% interest rate subsidy, freeing up some HUF 250 bln in liquidity.
The volume of industrial production grew by 4.1% year-on-year in February, the latest data from the Central Statistical Office (KSH) shows. Based on working-day and leap-day adjusted data, production rose by 1.7%. The economic effects caused by the coronavirus epidemic cannot be observed yet in this period, the KSH said. Of the subsections in manufacturing, the rate of growth slackened in that representing the largest weight, the manufacture of transport equipment, while it accelerated in the manufacture of computer, electronic and optical products, as well as in the manufacture of food products, beverages and tobacco products. Production volume declined in the majority of the subsections with a smaller weight. Production was 3.2% higher in the first two months of the year than in the same period of the previous year. Industrial output in February – according to seasonally and working-day adjusted indices – was 0.2% above the level of the previous month. Analysts said that March data will already show the impact of the coronavirus pandemic, and while the first quarter data might still be quite good, a sharp decline is anticipated already in the second quarter of the year.
We will see a relatively calm two-week period when it comes to macroeconomic statistics. The second estimates of February’s industrial output data will be released on April 15, followed by the February construction sector figures the next day.