The goal of expansion seems unattainable for Hungary, but buying an airport can be a good deal

Zoltán Török from Raiffeisen and Dávid Németh from K&H were the guests of Gergely Brückner in this week’s edition of the Téma podcast. The Téma podcast is on hiatus, so in the last broadcast, the experts discussed a big issue, the situation of the Hungarian economy. We have collected some of the most interesting claims from the broadcast.

The government may also have been surprised by the high budget deficit

At the beginning of April, it was revealed that the government’s expenditures this year already reached 92 percent of the deficit target planned in the entire annual budget in the first quarter. Two days later, Finance Minister Mihály Varga announced that the previous deficit target of 2.9 percent of GDP would be raised to 4.9 percent, and that HUF 675 billion in investments would also be postponed in order to maintain the numbers.

According to Zoltán Török, the analysts were not so surprised that the government could not meet its planned deficit target, but the government may have been somewhat surprised by the situation. This is indicated by the revised deficit target after three months and the announced consolidation, although according to Török, what the government has announced so far may not be sufficient. There are always one-off expenses at the beginning of the year, and now the VAT revenues have not arrived to the extent that the government had planned, and the costs of financing the public debt have been increased by inflation. So far, however, the government has generally not shown much self-reflection in relation to the budget, if the deficit has disappeared, it has usually only modified the deficit target. The question is whether there will be a more serious reaction now, but according to Török, it is not certain.

According to Dávid Németh, you could already see in autumn that consumption had not started. These numbers did not improve much in the first two months of this year, so the only major surprise in the April numbers is that the state’s VAT revenues have not yet started to rise. Németh expects an improvement this year, a slow increase in VAT revenues. According to analysts, consumption is not expected to explode, but with a very slow rise, it can still drive growth.

It is not worth counting on a decrease in inflation

The year 2023 kicked the door on the Hungarian economy in January with record inflation of 25.7 percent on an annual basis. The monetary deterioration finally shrunk to single digits by October, but last year’s inflation measured on an annual basis was still 17.6 percent on a monthly average, while consumption also fell. By March of this year, inflation had already dropped to 3.6 percent, but experts expect an increase again towards the end of the year.

According to Zoltán Török, the current March inflation of 3.6 percent is really low compared to last year’s 25 percent rate, but it is still considered very high in regional terms. The Czech Republic has met its two percent inflation target, and the Eurozone is below three percent as well. According to the expert

the prices of products have indeed not increased much, but the inflation of services is “sticky high” and still stands at almost 10 percent, which is the highest in the region.

Zoltán Török believes that as wages rise, consumption should also rise. This may cause a rise in prices, so it is questionable when Hungary will be able to reach the 3 percent inflation target.

According to Dávid Németh, the high inflation of the year 2023 plays on the current price increase of services, as companies can now raise the price of their services based on this. This year, however, the expert expects inflation of 4-4.5 percent on average per month, which can be positive for next year, since then the price increase will be compared to these numbers instead of the previous large-scale monetary deterioration.

The goal of “laying out” seems unattainable

The program also discussed the competitiveness strategy up to 2030 presented by the Minister of National Economy, Márton Nagy. Zoltán Török believes that all economic policy strategies are worth as much as they are taken seriously, but he feels that the current one was considered more like homework by the NGM. It is much more important than such documents for the government to listen to company managers and experience first-hand the needs and problems of companies. And the corporate sector can articulate its needs.

One of the important elements of the strategy is the need to strengthen the “Hungarian champions”, the larger companies that could also compete on the international market. As presenter Gergely Brückner reminded, this so-called the government justifies the investment with the aim that the owners of Hungarian companies bring home as many dividends from abroad as the multinationals producing here take out of the country. According to Török, although investment is very important, and Hungarian companies perform well in this regard, these ratios could be improved in the short term, because due to the huge foreign investments, battery factories, etc. that have just been planned, this balance will inevitably tilt towards foreign companies. it is not possible to balance the profit exported and brought home.

The Hungarian state may even do well by buying back the airport

The government’s company acquisition plans were also discussed, from the possible acquisition of Spar to the transfer of the Ferihegy airport to the state. According to Dávid Németh, a company will not function well or poorly depending on whether it is state-owned or privately owned, we have already seen examples of this and that in Hungary. Rather, the question is what kind of knowledge goes with the property, what kind of partners the company can cooperate with, whether there will be development, or whether the new owner will simply outlive the existing infrastructure.

A good example of the latter is the example of the water works, but Budapest Airport is perhaps a good example of the former. According to Németh, there is a real chance that Liszt Ferenc International Airport will be able to develop even after the state takeover. This may be partly due to the fact that the French Vinci Airports, which will own 20 percent of the airport and will also be responsible for management, has extensive experience in the sector. If the switch takes place, one can also count on a railway development, which Budapest would greatly need, according to the expert.

“The other question is that we have a very serious competitor in the region, Schwechat, and how we can absorb traffic from there to Hungary, or how well we can be a distribution center for air passenger traffic”

Németh added.

So far, no one knows whether it is worth producing batteries in Hungary

According to Zoltán Török, battery factories are still questionable about how economists will view this sector in a few decades. Battery production could be the driving force of a serious growth in the Hungarian economy by the end of the decade, but according to his own opinion, he cannot yet say whether this direction can be good for the country as a whole.

“I’m afraid that his evaluation will be a bit like the spread of heavy industry in the 1950s, when it was possible to think that it all served the war economy, even though Hungary just didn’t have the right capabilities for the development of this industry.”

said Zoltán Török. The expert also spoke about the fact that investors in Hungarian battery factories mainly come from Asia, while the economic rivalry between the United States and China has intensified recently. The question arises as to how “healthy” the rise of Chinese companies in European countries can be, which also represents a risk.

According to Dávid Németh, one of the questions is where American and European technology can develop, and whether it will be able to completely replace the Chinese supply, or whether the Asian capacity will always be needed. In the current situation, the automotive industry must transform, and for this a battery factory will be needed in the region. There are also positives to a battery factory, for example, batteries are “good for” car manufacturers, who are trying to switch to electric models anyway. The size is also a question here, whether it is really necessary to build such a large capacity, or it is an exaggeration that Hungary will be the second largest battery producer in Europe after Germany. However, according to the expert, this will only be revealed in the longer term.