Policy Agenda – Economic Development Index: recoiled economy

Policy Agenda – Economic Development Index: recoiled economy

The Economic Development Index (EDI) calculated by Policy Agenda since 2010   was 0.98 in the 4th quarter of 2014 that is to say – after the drop of the index ( – 0.29) in the third quarter – the EDI did not worsen further. The development perspectives are uncertain, the business environment seems to be unpredictable and the performance of the financial sector will reduce measurably.

The economic increase is weakening…

After the favourable increase in the first half of year 2014 – namely the 8-9% expansion of industrial production and the almost 10% increase in export – which were owing to the consumption-increasing effect of EU projects and the economic policy appearing in relation to the parliamentary elections – slow-down could be observed. By the year-end, the economic flows did not show a clearly favourable situation, moreover, the reducing domestic sales showed fallback. The first half-year’s 27% production increase in automotive industry was reduced to 21% by October while the production volume in the processing industry increased by 8.9% in the first ten months but in October, it increased only by 2.4%. The considerable 20% increase of building industry in the first half of the year was the result of the unbelievably low base and the important state building industry orders. In spite of the increase exceeding 3% in 2014, our economy’s performance achieved only the level that had been characteristic before the crisis of 2008 (however, the other “Visegrád” countries expanded by 5-15%). Our spectacularly bettering employment figure cannot be judged as a great result either because the number of the employed is the same in the competition sector now as it was in 2008, before the crisis. Meeting the general government deficit target planned for 2015 can be simplified by the favourable achievement of the 2014 deficit target, however, big troubles will appear because it will be impossible to reduce the general government debt at the planned pace.

The EDI index does not express that the economic players and households would see an important change in the working capital’s withdrawal flows or in the migration of Hungarian labour force but it signals that the interpretation of employment flows, the serious distortions of revenue relations and the evolution of several other factors all worsen the evolution of sustainable development.

Unchangeably unstable monetary position…

The financial parameters of the EDI are less favourable compared to the previous quarter. The flows of the state budget of year 2014 and planned for 2015 show that our overall government debt ratio is not reducing to the planned and promised extent. It is difficult to maintain the government debt at a low level, or, incidentally, it can be achieved by newer supplementations, and the economic organisations and the households can see that they will be charged by this again.

The situation with the bank loans of the company sector is improving only slowly and it is behind the needs of an increasing economy. In state budget year 2015 the over-taxation of economic organisations and the strict lending practice of loan institutions will remain further. Short-term lending has not increased yet upon the effect of the Hungarian National Bank’s (HNB) loan programme – started in 2014 – the objective of which is to make economy more dynamic. The SMS firms have not started investments to an extent that could be perceived in spite of the HNB’s placement of HUF  2000 billion.


The economy of households covers extremities…

The changes in the taxation system of 2015 have disadvantageous effects on the population’s revenues and consumption. On the first hand, the government measures will increase the charges of households and they will improve the situation of only a tiny group of the population and on the other hand, they will reduce the opportunities of consumption that is already lacking demand, including but not limited to as a consequence of prohibiting open shops on Sundays. The revenue flows make it presumable that the three low-revenue classes will become much poorer as a consequence of their revenues’ narrowing.

The household economy parameters of EDI showed the increase of purchasing power yet in the first half of the year but it was over by the end of the year. Despite the humble improvement of employment and revenue situation of 2014, households are not able to bear any more restrictions; more than one fourth of households live already on a sum less than the subsistence level per person.  Lasting unemployment is an unchanged serious problem. Approximately half of job-seekers have not found a job for more than one year and the average duration of job-seeking exceeds one and a half years.


Investments start with difficulties, foreign capital is leaving unchangeably…

The economic indicators of the entrepreneurial sector as a whole do not show an improving situation for the next quarter either. The Western European indices (as the IFO index as well) presume only weak improvement when judging prosperity. The worsening atmosphere of the entrepreneurial sector was established by the GDP increase that slowed down by the end of the year, by the slowing industrial development, the weakening domestic market demand and also by the business environment that remained unpredictable. It is very difficult to get loans; the taxation system and the changes in the Hungarian currency’s exchange rate all affect most of the entrepreneurial sector negatively.