Hungarian economy nears end of “elevation” year

Based on the timeline that Prime Minister Viktor Orbán laid out after being elected, 2013 was to become the year of ‘elevation’ after the 2012 ‘launch’ and the 2011 ‘reinvention’ that came on the back of 2010 being the year of ‘coming together’.

The labels dreamt up for the previous years are debatable, to say the least, but 2013, especially the second half of the year, has been pumping out figures that are ideal showcase material. The economy grew by a surprising 1.8% on the year in the third quarter, after positive growth in the preceding quarters as well. Unemployment is below 10% for the first time in ages; industrial output is also back into positive territory after prolonged contraction.

The introduction of utility cost cuts has also led to historic lows in terms of consumer price inflation. The latest figure from the Central Statistics Office shows CPI came in at 0.9% in November, and further similar measures are on the agenda.

Black and white
This year presented a sharp contrast to the events of 2012. Last year was determined by a major international economic crisis that took Hungary with it to such an extent that a complete collapse and default was a realistic prospect for a brief period at the start of the year.

Closely related, the government pursued a confusing strategy, of persisting with its insistence that it wanted a safety net from the International Monetary Fund and the European Union, while just as persistently refusing to take adequate steps to meet the prerequisites.

Thanks to the favorable global mood, fueled largely by stimulus measures in the United States and the Eurozone, Hungary actually paid off its earlier loan from the IMF – taken out at the height of the Lehman Brother crisis in 2008 – and even told the IMF to pack up its things and go, seeing as it has no longer had any business being stationed here.

The overall improvements are reflected in the economy’s performance, which allows the government to plan for 2014 with what it says will be a ‘boring’ budget typical of years when things are going along smoothly and no major interventions are required.

The postponed backlash
The arguments made to show the flipside of the fanfare invariably point out that the government measures are only cosmetic improvements that put off making actual sustainable changes, not to mention the fact that there will be a hefty price to pay for showboating later on.

Energy experts as well as opposition politicians warn that the utility price cut campaign, which has become the centerpiece of the government agenda, is seriously endangering the viability of the providers. As such, while making them pay more and earn less seems fair to the public, it also raises the prospect that their financial troubles will lead to the cancellation of necessary maintenance and upgrades, resulting in supply outages in just a few years.

Similar considerations could be applied to the budgetary planning. The government claimed a major economic success last year when its stringency measures successfully kept the budget deficit under control and the European Commission ended an excessive deficit procedure which had been in effect since Hungary joined the European Union in 2004.

The government maintained that its 2014 budget will not be one designed to raise votes in that year’s general elections, but nonetheless raised deficit targets to levels dangerously close to the EU’s 3% of gross domestic product tolerance threshold. Analysts have widely stated that the budget – which has fundamentally been approved by parliament, although it isn’t law yet – isn’t tenable and will necessitate corrections, just as with the multitude of amendments enacted on the past years’ plans.

Still, this is hardly a cause for headaches in the governing Fidesz party. The latest European Commission report determined Hungary’s budget goals to be realistic, meaning there isn’t any immediate danger of reentering scrutiny. Furthermore, given that the elections will likely be held at the start of April, the next cabinet can comfortably perform any corrections that are needed at the start of its new term. All opinion polls indicate that Viktor Orbán will, once again, lead that new government.