Lately, there have been numerous statements and analyses about the Hungarian growth model. It is highly appreciated that it is the topic of many active and professional discussions, however, due to the complexity of the issue, it is absolutely important to base our observations on objective and well-founded data. In the following, I am going to present how misleading and dangerous it can be if someone tries to make an assessment based on wrong data, using Viktor Zsiday’s article published on Alapblog as an example.

Ad 1) The evaluation of convergence processes is a serious challenge for economic statisticians. There are huge amounts of data in international databases. I would like to point out that there has been no such perfect indicator yet that would enable us to make comparisons between countries during an extended time period, but the Author using the so-called current prices indicator is a serious error. The best example for the problematic of the current prices data, which also includes inflation, is the crisis of 2009. In that case, the inappropriately used data indicates stagnancy, while surely every reader might remember that GDP fall of around 7%. Table 1 shows a convergence based on more realistic data, constant prices. It is clear that our home is heading towards the Leitha at the average pace of East-Central Europe.

Table 1: GDP per capita (PPP based) growth at current and constant prices between 2010 and 2016. Source: World Development Indicator Database
Country Purchasing power parity based GDP per capita growth at current prices between 2010 and 2016, WDI Purchasing power parity based GDP per capita growth at constant prices between 2010 and 2016, WDI
Hungary 24% 14%
Slovakia 22% 16%
Czech Republic 25% 10%
Bulgaria 28% 16%
Poland 32% 19%
Romania 38% 21%
Slovenia 18%  4%
Austria 19%  2%

Using the current prices indicator might be even more misleading when applied to the Hungarian growth between 2003 and 2010, which was 39%, ‘enriched’ with inflation. Actually, it was only 10% (in real terms), while the real growth was 14% between 2010 and 2016. If we want to make credible comparisons between the two periods (two seven-year-periods), then we shall include the 2017 growth forecast too; together with that, the growth was around 18% after the crisis, which is about twice as much as it was during the time of unsustainable indebtedness.

Ad 2) An evaluation that wishes to make reasonable comparisons between growth models has to include other control variables too apart from GDP growth – just as Viktor Zsiday mentioned at the beginning of his article under ‘Circumstances’. However, his description of the past and the current Eastern European ‘grace period’ contradicts itself, for example, in the question of economic migration; and it is not fully inclusive as for the result of the Hungarian economic policies either. Disregarding the improving labour market, the changes in the tax system, and the internal and external financing and debt processes is a serious error.

Of course, the issue of external tailwind is important, which cannot be ignored, especially in the case of a small and open economy. However, if we stick to the analogy of the tailwind, our country had to fight serious headwinds too during that particular period. Before the crisis, no other country in the region had as much debt as Hungary, and repaying that burdened the following years. We achieved a notable growth during the period after 2010, while we were also paying back our foreign debts. The other countries in the region started to recover from the crisis from a situation which was not even comparable to ours, and they also took advantage of the above-mentioned tailwind.

Figure 1: The development of the net external debt (debt-to-GDP, net external debt without intercompany loan) Source: national central banks, Eurostat. Notes: April 2017 Balance of payments MNB publication.

Figure 1: The development of the net external debt (debt-to-GDP, net external debt without intercompany loan) Source: national central banks, Eurostat. Notes: April 2017 Balance of payments MNB publication.

These two errors of the author could be best described with a sports analogy: it is like the sports media referred to Balázs Baji’s exceptional achievement one day after the world championship as ‘Hmm, it is not that bad, but it is still 3 seconds more than Usain Bolt’s time, after all’. While in reality, the track for Balázs is 10 metres longer and he also has to jump over ten obstacles too. Translating it to economics: high state and external debt, the central bank base rate close to a two-digit number, the extra burden on households with foreign currency loans, the banking system becoming risk-averse, and the previous distorted tax system were towering obstacles before Hungary and its economic policy. The Hungarian economy, despite the longer track and the obstacles, is still competitive. Furthermore, if we compare our achievements to other countries in similar situation, we can see that, just like our famous hurdle runner, the Hungarian economy is among the best.

Ad 3) Last but not least, we shall comment on the role of EU funds in the Hungarian economic growth. This issue and the myths surrounding it would deserve a separate analysis. For now, I would like to add one thing: in 2016, the Hungarian economy managed to grow at a 2 percent rate, even though the amount of EU support significantly dropped. On its own, it suggests that talking about the growth rate slowing down would be unreasonable.

Gábor Horváth, economic expert at MNB (Hungarian Central Bank)

Original date of Hungarian publication: 22 SEPTEMBER 2017