Hungary FinMin on COVID-19 fallout: "This year is largely done for."
The highlights of Varga's interview are the following:
Varga said he will be happy if economic growth this year exceeds 0%.
This year is largely done for.
There could be some uptick in the fourth quarter but the economic impacts will drag out for at least a year.
It seems Varga is even more pessimistic than J.P. Morgan. The U.S. investment bank projected in a recently published research note that along with the other emerging markets, the Hungarian economy could slump into recession in 2020. It estimates 3.0% GDP contraction for this year, although it believes recovery could start already in Q3.
As regards the record weak forint, Varga remarked that this is the market's current assessment of Hungary. Adjusting the exchange rate is in the central bank's jurisdiction, he reiterated. The HUF hit all-time lows around 360 to the euro on Thursday and it slumped to record lows also versus the US dollar. Since then, it has regained its strength and it was quoted at 349.55 on Friday morning, some 2% stronger than its Thursday close.
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About unemployment he noted that there are currenty 80,000 vacancies, but in a month's time this will be different. You need to approach the problem differently if unemployment grows by 100,000 or if 500,000 jobs are lost, he said.
We can not foresee the numbers at present but we are calculating with hundreds of thousands of unemployed. The only question is, how many hundreds,
said Gergely Gulyás, minister in charge of the Prime Minister's Office, on Thursday. The government does not intend to extend the duration of unemployment benefits but would rather ensure that nobody is out of work for more than three months.
Helping the affected sectors will cost the budget hundreds of billions of forints in extra spending, but losing jobs would cost even more, added Gulyás.
We are now in the phase of the crisis when troubled sectors, such as tourism and the film industry, need to be propped up, said Varga.
If the crisis deepens and the rate of unemployment jumps, we'll need new tools but there are various plans in the pipeline, he added.
As regards the loan repayment moratorium, Varga remarked that the banking sector had a great year in 2019 therefore they can afford themselves to pitch in.
As regards the audacious price hikes by shameless businesses exploiting households' panic-purchases, Varga remarked that you may broach the traditional boundaries of the market and regulatory prices might be considered for health care products.
As for the freeing of EU funds for member states fighting the spread of COVID-19, Varga said this does not really help Hungary for it has already allocated all the available EU funds. Cutting red tape at public procurements would be a greater help, because currenty adminstration is so slow that by the time they get it done, the pandemic will be gone too.
Bruxinfo reported earlier this week that the European Commission is providing a sum of HUF 5.6 billion for Hungary towards its efforts to contain the epidemic. Gulyás was unable to confirm this, but added that at this point in time, this sum is zero. The crisis management tools and measures announced to date are helpful for many states, also allowing the more flexible utilisation of funds, and this could perhaps also apply to Hungary to a lesser extent. At the same time, these mainly help countries which are doing poorly in the absorption of EU funds; Hungary is not one of these, Gulyás told journalists yesterday.
The European Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the COVID-19 outbreak, the Commission announced late on Thursday.
Hungary will be receiving face masks, respirators and other medical equipment worth HUF 3 billion from China already this week, said Varga.
The Finance Ministry plans to revise the budget and re-allocate HUF 3,000 billion worth of funds within a few weeks, thus creating the resources for the fight against COVID-19 and its economic fallout. Replanning will also affect the 2021 budget.
