The impact of COVID-19, sustainability and socio-economic development on Hungary’s competitiveness (in Hungarian)

The pandemic has set under way such economic and social developments that diverted national economies from their previous path. Experts unanimously agree that economic growth relying on the rapid expansion of household consumption cannot be maintained in its current form due to its negative externalities. The study analyses the background and the impact of the crisis in five dimensions, all from the point of view of sustainability.

Government debts surged in the first waves of the epidemic. By analysing the measures mitigating the impact of economic recession one can conclude that (contrary to some Member States like Greece) the rise in debt in Hungary was effectively the result of an increased nominal debt stock. However, the GDP grew by 5%, the deflator rose by 5.5%, which decreased the nominal GDP (at current prices) by the same amount.

An EU-wide comparison of social measures is analysed in a separate chapter. The core argument is that employees must keep their jobs, while the state should also promote a more effective operation of market forces. In some member states this argument is conducted between social partners (like in the Czech Republic), which is the sign of an effective and progressive dialogue. The social partners in Hungary demanded a state-supported short working time scheme like the German ‘Kurzarbeit’ model in order to secure jobs. They also called for industry-specific measures in the sectors hard-hit by the pandemic, but their opinion was weightless in the decisions of the government. In the lack of appropriate state support, social partners also pushed for raising the duration of unemployment support in the country (currently only three months), but this was also unsuccessful.

During the research we paid special attention to the competitiveness of the Hungarian economy. In regional comparison Hungary was successful in all factors through which the competitive advantage could be enhanced. Still, the real development of the economy was by far not outstanding due to an inadequate innovation capacity, weak digitalisation and to the large productivity gap between foreign-owned and local firms. The study examines the present and future of Hungarian digitalisation in a separate chapter. Digital solutions must play a crucial role in higher education and vocational training, both as assets and knowledge to be taught. We are in the eleventh hour to begin digital training for all generations, and building a digital ecosystem, as it is also advocated by the EU.

Owing to the lack of competitiveness, Hungarian firms depend on foreign supplies ­­– this is the issue analysed in another chapter. The research points out dependence on Russia, Poland and the Netherlands, which has not been emphasised much by other studies in the literature. The main risks are supply-side effects which require much more diversification. This would be the preferred focus rather than striving for self-sufficiency and isolation.

The next chapter reviews the pre-crisis status of Hungarian firms, and it concludes that in 2019 companies were generally quite resilient. Even the hardest-hit tourism sector was relatively in a good position when the economy was in lockdown. Owing to state subsidies for the companies in need, corporate bankruptcies were moderate compared to the Czech Republic, where they doubled in 2020. Corporate indebtedness in 2019 was even more favourable in Hungary: the data show lowering liabilities in 2020.

The last chapter in the study reviews actions concerning climate change which is the most challenging problem on the medium term. Regardless of the pandemic, the aims of the European Union are quite ambitious and funds allocated for the restart of the economies are partially linked to the fulfilment of these goals. The main goal is the reduction of greenhouse gas emissions by 55% until 2030. Member states are urged to curtail their emission faster in sectors fully or partially covered by the emission-trade system. The Commission would also introduce stricter objectives for the ratio of renewable energy sources in the energy mix. The main tool for this is the reform of energy tax which means – from 2026 – the introduction of a carbon customs fee. Not all objectives of carbon neutralisation are supported by the member states, particularly in the new EU countries, because their economy heavily relies on the targeted sectors (like the car industry).

The Fiscal Council of the Hungarian Parliament. Contract No. KVT/8-1/2021.
August 2021
Project leader:
Péter Vakhal
Rozália Bogó, Krisztián Koppány, Nóra Krokovay, Zoltán Matheika, Katalin Nagy, Éva Palócz, Vakhal Péter