International economic trends in deteriorating global environment – consequences for Hungary

The aim of the project was to explore how the COVID-19 pandemic affected world economy. The COVID-19 pandemic health crisis has had severe consequences on global economic activity since March this year and has overwritten all previous forecasts. The crisis – due to the lockdown and diminishing consumer confidence – lead all over to a substantial drop in the demand of private consumption and services. At the same time in certain areas – like the health sector, food products, household goods – demand grew suddenly in a way where supply could not keep pace with. During the pandemic inflation remained in general moderate, reflecting the extremely low level of oil prices, and dramatically shrinking demand. However, the trends show great varieties depending on sectors and regions. The global crisis has had severe consequences on labour markets. In case of several countries short time work schemes were introduced. The crisis affected in the first line low-skilled labour and female employees and led to jump unemployment rates in sectors where the possibility of home office was not a viable alternative and where market demand shrunk dramatically. Freelancers especially in the field of cultural services, self-employed, part-time workers, or employees on fixed terms, vulnerable groups of young workers had to face severe problems.  

The experiences during COVID-19 crisis drew attention to an old debate concerning benefits of GVCs contra national production. A rethinking of the stability of value chains will be necessary, an improved transparency and a better for-warning system might make value chains more robust in case of similar shocks in the future. A post-crisis adjustment can generate structural adjustments (e.g. the green economy) which again would produce new types of value chains. If preference will be given to reliability and security against cost efficiency a new approach of acquisition may evolve, supplier chains could become shorter and an increased diversification of supply sources could be strived for. There was a sharp drop of world trade early 2020, especially exports of advanced countries shrunk dramatically. With reshaping value chains, a relocation of production in certain sectors could be observed both in Europe and the US, however, due to capacity constraints this remains rather the exception. Anyway, the role of China as a global player will change in the future: its role as a supplier will weaken, however it will play a growing role as an international investor. 

Responding to the unfavourable impacts of the pandemic monetary easing continued. Efforts for crisis management and economic stimuli programmes introduced lead in all countries (not only in Europe) to a substantial rise of public debt. 

Prepared for the Secretariat of the Fiscal Council
September 2020
Project leader:
Katalin Nagy
Rozália Bogóné Jehoda, Miklós Losoncz, Éva Palócz, Péter Vakhal, Csaba Tóth G.