Should Hungarians feel a bit down on their way to work, Eva Szabo is there to cheer them up: “I’m happy,” she says, smiling at passers by from Budapest advertising hoardings and the sides of trams. Ms Szabo – who, the advert indicates, is a nurse – is beaming because the government, via its New Szechenyi Plan, has “modernized hospitals”, and such developments “must continue”, goes the text.
The implication is obvious: the way to guarantee such progress – and happiness – is for Hungarians to renew the mandate of prime minister Viktor Orban’s Fidesz government at the ballot box next spring.
The Fidesz government has put great store by its public relations machine, and with nine months before elections, it has been cranking out positive stories – with a special focus on economic renewal and success.
Super positive government headlines such as “Employment hits a multi-year high” and “Hungary expects record-breaking tourist season” are not without basis: a swathe of macroeconomic indicators have improved since the country appeared to be on the verge of calling for an IMF bailout in January last year. Perhaps the most notable achievement has resulted from the government’s determination to rein in the budget deficit – it hit a record low of 1.9% of GDP in 2012 – which allowed Hungary to be freed from the European Union’s Excessive Deficit Procedure for the first time since accession in 2004.
Buoyed by a successful $3.25 billion bond issue in February and an ever benign international sentiment, in mid-summer Orban announced he would close down the IMF’s Budapest office and repay the last bailout instalment before the contracted date.
Meanwhile, with inflation in decline, in September the central bank’s monetary council trimmed the base rate for the 14th consecutive month – this time by 20 basis points – to a record low 3.6%. The consumer price index for August was a mere 1.3%.
To top this off, the economy expanded by 0.5% in the second quarter (at least, that was the government headline – the adjusted figure was only 0.1%), and employment statistics indicate that with almost 4 million in work, the jobless rate is 10.1%, a four-year low. Using such data, and with output from major investments in the auto industry coming on line, it is unsurprising that Orban, addressing parliament after the summer break, emphasized the “turnaround” in the country’s economy, declaring that “the era of colonization is over ... we are standing on our own two feet rather than living off other people’s money,” while predicting 2% growth for 2014.
LAUGH OR CRY?
As governing Fidesz MPs, self-assured with their two-thirds “super majority”, predictably basked in this self-proclaimed victory, opposition members, equally predictably, derided it. “People don’t know whether to laugh or cry,” Attila Mesterhazy, the Socialist leader said, arguing that more Hungarians had found employment in London than at home in the Fidesz era.
He has a point. It is estimated that between 200,000 and 300,000 Hungarians work in western Europe, most of whom – judging by comments in internet chat rooms – have left in the past three years. However, due to the methodology of calculating employment, many are counted as part of the domestic statistics.
Analysts at OTP Research, examining why economic indicators, such as GDP and consumption, remain anaemic when the employment statistics imply the number of jobs lag the pre-crisis peaks by only 25,000, concluded that the misalignment was due to a combination of Hungarians working abroad, job creation schemes (which produce almost nothing in terms of tangible economic output) and a “quickly rising number of part-time employees ... meaning that the full-time equivalent employment in the ... private sector is less than what the headline numbers suggest.”
Economists similarly question the sustainability of other indicators, saying inflation has been artificially reduced by government-mandated utility price cuts, and even the latest growth data is flaky. “Technically speaking, Hungary has come out of recession, but the structure of this growth will not give you confidence in the future. It has mainly come from agriculture, which had a poor base last year, and from construction projects financed by the public rather than the competitive sector,” Balint Hada, chief researcher with Quaestor, a Hungarian securities firm, tells Emerging Markets.
Others point out that the Fidesz government’s “unorthodox” economic policies – which continue to plague largely foreign-owned banks, utilities and telecommunications companies – have seriously damaged business confidence.
“This has led to investment levels at just 16% of GDP, which is simply insufficient to renew existing economic assets,” Peter Balazs, professor at the Central European University in Budapest, tells Emerging Markets.
With elections due next year, one economist who does not want to be named notes that “the number of hand-outs, 10 billion forint here, 20 billion there, for opera or football stadiums” has increased – as has the number of loans taken out by state-institutions, such as MVM, the electricity company.
Last month, Hungary signalled its intention to issue as much as $5 billion in dollar bonds on the US market.
The markets remain wary. After an August base rate reduction, the forint eased to Ft301 to the euro, and long-term bond yields rose by between six and 10 basis points.
But with Fidesz riding high in the opinion polls, and opposition still largely in disarray, provided global sentiment stays positive, Orban’s “economic renewal” – with the help of Eva Szabo – looks enough to ensure a second consecutive term in office for the former anti-communist student activist.