2016 Q1 investments in Hungary plummet; gov’t convenes crisis group

May 30, 2016


2016 first-quarter investments plummeted 9.6 percent year-on-year, reports Hungary’s Central Statistical Office (KSH). The problem is exacerbated by the 90 percent drop in investments compared to the final quarter of 2015, which daily online 444.hu attributes to Hungary’s over-dependence on EU fiscal transfers.

Investments in manufacturing have fallen 3.6 percent year-on-year despite being heavily subsidized.

All this data makes it easy to understand why Hungary’s 2016 Q1 economic growth figures were the worst in the European Union.

Last week, Figyelő reported Prime Minister Viktor Orbán was so shocked by Hungary’s weak performance that he ordered Minister of National Economy Mihály Varga to formulate an economic stimulus package. 

The news is a blow to the prestige of the third Orbán government, which has pointed to the country’s above-average economic growth rate as evidence that “Hungarian reforms are working”.

The government originally projected 1st-quarter GDP growth of around 2.6 percent year-on-year. In the event that the economy continues to underperform, the state may be forced to open the budget in an effort to prop up some kind of domestic growth. If this happens, Hungary runs the very serious risk of running a budget deficit above 3 percent.

But there have been signs that the government could foresee the economy slumping in 2016. In March, the Fidesz-KDNP-controlled parliament adopted legislation granting the Prime Minister’s Office (PMO) the authority to bypass the entire budgetary process and allocate public funds for projects of its choosing. The law, which was proposed by the PMO, pretty much allows the PMO to make budgetary decisions by decree.

According to the new economic stimulus package, the government would like to stimulate the economy by introducing more central planning provisions, such as reducing time spent preparing for state investments and by giving a boost to the stock exchange and “other investment forms” — whatever that means.