Hungary emergency measures to hit economy hard

Portfolio
Measures announced on Wednesday by the Hungarian government may slow the spread of the coronavirus substantially by closing down major avenues of infection, although keeping schools running may leave one key channel open. The economic impact could be severe, several players in service sector may find themselves in difficult times, ans GDP growth could be tangibly lower as a result of the measures.
mozi

The government has decided to introduce a state of emergency as of Wednesday night in order to slow the coronavirus epidemic in Hungary. Border control will be re-implemented on the Schengen borders with immediate effect, and only Hungarian citizens may enter the country arriving from Italy, Iran, China, and South Korea. Universities, theatres and cinemas will be closed.

The measures will definitely have two effects:

  • slowing the spread of the coronavirus, and
  • decreasing economic activity.

We can not really estimate the magnitude of the former, as there are at present very few identified cases in Hungary (13), and there is no parallel reality we could use as a basis for comparison. Limiting physical interaction between people will certainly decrease the likelihood of passing on the virus. Meanwhile, the government shied away form drastic measures such as closing down primary and secondary schools, and its arguments for doing so are rather shabby. (After all, cancelling school events is not a very rational move if schools keep running otherwise.) As a result, the virus may still find avenues of infection in everyday life. We believe the government is reserving such a strong measure (parents of children staying at home would be out of work temporarily) for the potential second stage of the epidemic, when individual virus carriers and their contacts will no longer allow authorities to track the spread of infection.

We can only make cautious guesses as to economic activity, but we do have a few pointers. The most significant direct effect will be the closing of theatres and cinemas and the cancelling of major events. Total revenue of cinemas in Hungary was around HUF 25 billion last year according to MNHH figures, and as the Central Statistical Office (KSH) somewhat surprisingly told us in 2016, the ticket revenue of theatres is slightly higher than that. Several billion forints of those ticket sales will now be lost, which will definitely hit the industry hard.

The weight of arts, entertainment and leisure services is approximately 2.5% in Hungary's economy, or HUF 1,100 bn. If we assume that added value in the industry will decrease by 20% at an annual level due to restricting measures and a general drop in demand, we are looking at a 0.5 percentage point decrease in the country's GDP. Of course, such a major decrease would require epidemiological measures to be kept up through several quarters, but

the example shows that a strong shock even to a sector of relatively small weight can have a major influence on GDP growth.

The impact of closing universities is hard to estimate as the value of this service is very hard to measure in the first place, and the effect of such shocks is hard to quantify statistically. Economic performance will be affected mush more severely by the commerce, vehicle repair, lodging and catering sector, which represents a 11% weight. Although not hit directly by government measures, the decrease in events will also decrease demand for accommodations and catering, while the general uncertainty and more cautious behaviour associated with the epidemic will also lead to substantially lower revenues.

In this sector, a 10% slowdown lasting for a single quarter would decrease Hungary's GDP by 0.3 percentage points. Combined with entertainment, we are already looking at a 1 pp decrease in GDP, and we have only covered domestic effects, to say nothing of the export sector. The numbers indicate that the government was understandably cautious when revising its GDP growth forecast for the year.

This article is available free of charge for all readers, but if you want access to the full content of Portfolio's English language website, click here!

 

More in Economy

Hivatalos: januártól indul az építőipari cégek támogatása
August 29, 2025 10:45

New construction starts in Hungary set an unpleasant record

The domestic construction industry has really not regained its footing

transport
August 29, 2025 09:19

Hungary's foreign trade balance on track for historic record, but signs of recovery remain weak

The first data for the second half of the year are in

moszkva-vlagyimir putyin-oroszország-hadsereg-ukrajna-konfliktus-frontvonal-orosz haderő-donyeck-orosz-ukrán háború
August 29, 2025 08:51

Hungarian-Ukrainian relations hit new low over oil pipeline attacks and army officer's entry ban

War of words breaks out, with Poland also joining in

Bosch Rexroth
August 28, 2025 14:30

GKI Economic Research Institute's economic sentiment index finally shows slight increase

Moving away from the lowest point of the post-Covid era so far

gyár termelés worker
August 28, 2025 11:31

Summer sees turnaround in domestic labor market

Employment has increased

ukrán drónerők kitiltás barátság vezeték
August 28, 2025 11:30

Ukraine's drone force commander of Hungarian nationality banned from Hungary and Schengen zone

The Hungarian government "condemns all attacks on the country's sovereignty"

LATEST NEWS
Charting is displayed using TradingView's technology, a platform, where you can build advanced charts, spot upcoming trends in the stock screener, and find inspiration in multiple trading ideas

Detailed search