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Bajnai: Hungary stuck in recession without change in direction

Former Prime Minister Gordon Bajnai expects the economy to contract this year, just as it did in 2012, and expects further socially disastrous events in the next few years without a change in governance.

Former Prime Minister Gordon Bajnai expects the economy to contract this year, just as it did in 2012, and expects further socially disastrous events in the next few years without a change in government.

Bajnai, head of the Együtt 2014 political group, predicts that recession will prove a lasting burden for Hungary with the economy to shrink by 0.5% of gross domestic product this year. As he told a conference celebrating the 20th anniversary of the founding of the GKI economic research institute, a study prepared by his associates that assumed a “no change in policy” scenario for the next six years showed the situation can only deteriorate.

His forecasts say that any growth in the time span covered could only amount to an annual 0% to 0.5%, and that unemployment will remain stuck at 11-12%, repeatedly forcing the government to implement corrections to annual budgets.

His projections are somewhat worse than the latest yearly forecast released by GKI, which sees stagnation in 2013, meaning the output levels seen in 2012 will be repeated. However, it noted – largely agreeing with Bajnai – that even this feat could only come at the expense of burning through what little reserves the system has left to offer, and that all the while qualified labor is looking to leave the country and capital is fleeing. GKI pointed out that the nationalized private pension funds, some HUF 2.5 trillion forints, have already been spent without any structural reforms and the economy remains in recession.

The former premier also underlined the consequences of the pension wealth nationalization and the fact that it was spent, saying the government has encoded a major general conflict into the welfare system, since those meant to keep the system alive through their taxes won’t have pensions of their own to look forward to.

Bajnai said that from the three possible channels spurring growth – exports, investment and consumption – only inviting new investments can come into consideration, since exports are already at their peak and domestic consumption will not be a major factor anytime soon, given the high level of unemployment and the poor financial state of the population.

For 2013, GKI does not see the desired increase in investments, but rather a 2% year-on-year drop.

Bajnai urged the removal of Viktor Orbán’s government from power at the next general elections in 2014. He stressed that the change in “regime” must not lead to a quest of retribution spanning all levels of government, but should instead lead to a six-year comprehensive economic agreement with all stakeholders involved, as this is the only way to give prospective investors any assurance that their assets in Hungary are safe.

He laid out the political mix for a government in which he is a factor: liberal towards businesses that need only to be left in peace to operate, conservative to protect the middle class from falling behind, and social democratic towards the impoverished, who need the support of the state.

For businesses, Bajnai proposed a “tax constitution”, a document that provides written guarantees to investors about what their expectations can be for the upcoming years. Such a document has become a necessity after the hectic policymaking of the Orbán government has utterly shaken confidence towards the country. This too, must be created with the involvement of all stakeholders, he added.