The Glass is half full

In a July 18^th article “Hungary Premier Credits his ‘Unorthodox’ Course for Economic Rebound” the Wall Street Journal reported that “Hungary is pulling out of recession, with economic output expanding in the first three months of the year after contracting in 2012.”  Astonishingly, the graph appearing in the article purporting to illustrate that Hungary’s economy “was returning to economic growth” shows 2013 1^st quarter GDP decreasing nearly one percent.   It seems the authors didn’t consult their own graph let alone official statistics published by the Hungarian Central Statistical Center (KSH) on-line at www.ksh.hu. (Not surprisingly, the version of the article appearing in the Wall Street Journal’s US print edition the next day featured the more subdued title “Hungary Sticking To ‘Unorthodox’ Growth Policies”.)

According to KSH while “seasonally and calendar adjusted and reconciled” GDP increased 0.7% over the previous quarter, it decreased 0.3% year on year.  According to the “raw” data 2013 1st quarter GDP actually decreased 0.9% year on year.

So what’s happening with the Hungarian economy?  According to the publication “Statistical report: Economy and society January-April 2013 (Issue 27 of Volume 7) which can be downloaded from KSH’s home page:

• “The output of the Hungarian economy was 0.9% lower in the 1^st quarter of 2013 than the year before.”
• “Internal demand, representing 91% of gross domestic product, was 1.5% lower in January–March 2013 than in the same period of the previous year, continuing a trend of one and a half years of decline.”
• “Household final consumption expenditure, representing nearly six tenths of internal demand, decreased by 0.6% in the first three months of 2013 compared to the corresponding period one year before.”
• “The shrinking of the volume of gross fixed capital formation continued, at a rate of 5.6% in the 1st quarter of 2013. The proportion of the item of expenditure to GDP also fell: it was 13.0%, which is a decrease of 0.8 percentage point compared to the figure of the 1st quarter of 2012.”
• “The volume of national economic investments, representing nearly eight-tenths of gross fixed capital formation, decreased by 8.7% in the first three months of the year compared to the same period of the previous year, which is the highest fall in the previous three years.”
• “The majority of sections underwent a fall. Decrease was recorded of the largest sections making investments. The output of investment was down by 13% in manufacturing.”
• “The output of the services sector went down by 0.8% in the 1st quarter of 2013 following the decline in the corresponding period of the previous year.”
• “Investments in real estate activities . . . shrank by 20%.”
• “In January–April the volume of industrial production was 1.2% lower than in the same period of 2012, and the volume of sales was 2.9% higher in external markets and 4.0% lower in Hungary.”

While the report also states that “the volume of industrial production after seasonal and working-day adjustment was 1.2% higher in April than the previous month”, this was more than offset by the 2.1% decrease in industrial production in May.   Furthermore, it is not considered good practice to make broad pronouncements as to the general health of the economy based on small monthly or quarterly fluctuations.  The trend lines are clear:  Hungary’s recession is deepening at a time when other central European countries are experiencing positive rates of GDP growth.

Economic statistics only tell one side of the story.  Three years of economic stagnation coupled with Europe’s highest inflation rate (the result of a steady stream of “unorthodox” taxes levied on banks and companies that are passed through to consumers) has resulted in a three-fold increase in the number of Hungarians living in poverty and a five-fold increase in the number of those living in dire poverty.  In a country of just under 10 million people an estimated 4.3 million live in poverty and 1.5 million live in dire poverty.  Half the children born in Hungary today are born into poverty.

In his eagerness to sing his own praises, Hungarian Prime Minister Viktor Orban appears to have deliberately misrepresented the state of the Hungarian economy to the Wall Street Journal.  Why?

Next year’s national parliamentary elections will be the first time people of Hungarian descent living abroad will be permitted to vote in Hungarian elections providing they first apply for and obtain Hungarian citizenship.  In order to do so then must demonstrate partial Hungarian ancestry and some rudimentary knowledge of Hungarian .   (In the case of an acquaintance of mine it was enough to demonstrate that his parents were born in Hungary and that he could spell his name using the proper diacritical marks).

In 2010 low voter turn-out, especially among traditional supporters of the then highly unpopular Socialist party, enabled one-third of the Hungarian electorate to hand Fidesz a two-thirds parliamentary majority.    Since then Fidesz’s star has waned considerably.  According to a recent poll only 25% of registered voters and 45% of those certain to vote intend to vote for Fidesz in the next election.   Newly enfranchised voters living and working abroad whose lives are not directly impacted by the Fidesz government’s ruinous economic policies are likely to cast their absentee ballots for Fidesz in April providing the economic and social situation does not significantly deteriorate between now and then.

According to the government over the past three years some 360,000 individuals of Hungarian descent living abroad have applied for and received Hungarian citizenship. In a country of just 8 million eligible voters with one of Europe’s lowest voter turn-out rates a few hundred thousand votes cast abroad for the governing party–even one as unpopular as Fidesz—may be enough to return it to power.  This number could easily increase to 500,000 or perhaps even a million depending on how many passports the current government hands out over the next nine months.

For Viktor Orban and Fidesz persuading new voters that the Hungarian economy has turned the corner may be the key to winning the election. However, so long as KSH continues to publish alarming statistics and western newspapers accurately report them, it is going to be a tough sell.  Fortunately for Viktor Orban his pronouncements are reported uncritically not only by government and Fidesz controlled media outlets, but venerable, conservative foreign newspapers like the Wall Street Journal as well.

The author is the president of the American House Foundation (www.americanhousefoundation.com, www.facebook.com/americanhousefoundation) which organizes and funds poverty relief programs in Hungary.