Economy 11 March 2020, 9:35am

Hungary FinMin envisions recession amidst coronavirus scare

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There are at present very uncertain estimates regarding the economic impact of the coronavirus, but there is agreement that the situation is not expected to improve, Finance Minister Mihály Varga said Tuesday evening on Inforádió. Processes originating in China will certainly affect major sectors and players in Hungary's economy. According to Varga, in the worst-case scenario, Hungary's GDP could decrease slightly this year if the epidemic is dragged out.

There are very few cases in the global economy when a crisis period hits the supply and demand sides simultaneously. Now demand has frozen and there are also supply problems as products are not finished due to lack of components, and it is very hard to estimate the actual impact of this process. Varga said.

The Finance Ministry has made various calculations using forecasts on the global impact of the virus from the IMF, the European Commission and the EBRD, attempting to model what lies ahead for Hungary.

If everything returned to normal tomorrow and the global economy grew 3.3% this year, Hungary would have a chance for a 3.5% to 4% GDP growth. But that is only if the virus disappears tomorrow. Obviously, there is no such scenario, only worse ones are on the table, Varga said.

Varga's words appear to indicate that the government no longer believes in even 3.5% growth, having recently slashed its forecast from 4%, and now expects even lower growth..

The updated forecast of the IMF and the OECD now sees a probability for 0% global growth this year. According to the Finance Ministry, in the worst-case scenario, the EU's economy could shrink up to 2.6% this year, Varga said, adding that it has "buckled" already in the recent period. This would also deeply affect the Hungarian economy, which would stagnate or shrink slightly under such a scenario, Varga said.

In conclusion, Hungary's GDP growth will be between 3.7% growth and minus 0.3%,

depending on how hard the coronavirus hits, how long the epidemic lasts and how deep it goes, Varga said, adding that entrepreneurs also have a negative outlook and are uncertain if they will weather the current storm.

We still cannot see how deep the epidemic will go or how it will affect countries in the CEE region, which are probably less infected at the moment, Varga said. The minister was cautious regarding stimulus measures aimed at deflecting the impact of the virus.

The Hungarian government could announce its new economic protection package as early as next week but will wait to see the impact of the epidemic, Varga said, adding that drafting economic protection measures was an ongoing process.

Due to the large number of uncertain factors, no survey of the potential economic impact of the virus has been made that is detailed enough to make forecasts for Hungary. This is why it is shocking to see that the Finance Ministry does not rule out even a potential recession. Of course, that would follow a scenario where the whole of Europe is paralysed by a series of quarantines, which sounds alarming but there is a very real if low probability it will happen. If the developments of the epidemic in coming weeks point towards the worst economic outcome, a thorough re-planning will be required as there will be major changes to the budget even excluding stimulus packages.