Miserable times?
Today to spice things up I'm going to interlace a few quotations from Warren Buffett, probably the least materialistic billionaire on the planet, with my summary of EU economic forecasts. Let me start with one that encapsulates so many of my vents: "The smarter the journalists are, the better off society is. For to a degree, people read the press to inform themselves–and the better the teacher, the better the student body."
I'm coming to the conclusion that Hungarian journalists use adjectives to describe the state of the economy or politics that are seldom used in English. In English-language media one is hard pressed to find adjectives like "deplorable," "lamentable," or "miserable" when describing the current economic crisis (though Warren Buffett, who is not prone to using trite adjectives, said that the U.S. is in the midst of an economic Pearl Harbor). I actually looked around on Google News and found no equivalent to describe the European Union's latest prognosis for its member economies in 2009.
Yet this is exactly how Népszava introduced the latest figures. Actually, the prognosis is not as bad as I had imagined. Of course, economic prognoses are not very reliable, particularly in volatile markets. Again, let me quote Warren Buffett; just substitute economic forecasters for stock forecasters: "The only value of stock forecasters is to make fortune tellers look good." The upshot is that for the eurozone they predict an average decline in GDP of 1.9% while for the non-euro countries 1.8%. They project that Hungary's GDP will decline by 1.6%, though the Hungarian government thinks that this figure is too optimistic. The prediction for 2010 is even better: a growth of 1.0%. This is what Népszava considers to be "deplorable, miserable, lamentable," take your pick. The fact is that although a recession is never pleasant, one ought not to exaggerate its effects by predicting "lamentable" or "miserable" times. Yes, they will be difficult but not miserable. The 2009 projections, for what they're worth, are worse for Germany and the U.K. (-2.3% and -2.8%).
Why are the economists of the European Union in Brussels so optimistic? First of all, they hope that accelerated government expenditures and growing investments will help the situation. In addition they think that lower inflation rates may stimulate consumption. (Yes, but think back to Econ 101: if you think that prices tomorrow are going to be cheaper than prices today, you'll hold off on your purchases.) According to the explanation attached to the predictions, "the different governments last August reported certain investments that will lessen the drop of GDP by 0.75%." Still the picture is grim, especially when it comes to unemployment. (Don't forget that unemployment is a lagging economic indicator, usually not righting itself until a few quarters after the economy does). They figure the loss of 3.5 million jobs. The predicted average unemployment figures will be 8.7% in the EU as a whole; within the eurozone it will be even higher, 9.25%. Moreover, although there might be some economic recovery in 2010 they expect even higher unemployment figures for that year. Inflation, on the other hand, will moderate. In 2008 the inflation rate in the EU was 3.7% (in the eurozone only 3.3%) while for 2009 they figure 1.2% (in the eurozone 1.0%).
As for Hungary, unemployment will grow by 2.0% this year and by 0.4% next. That means an unemployment rate of 8.8% in 2009 and and 9.1% in 2010. Inflation this year will be 2.8% and next year 2.2%. These figures are higher than what the government predicts. Miserable? Lamentable? Well, it's not ideal, but I would refrain from using such adjectives. They don't do much for the soul, especially when the Hungarian figures, all in all, are not even that bad. They may get worse and then what? Journalists will have to come up with a new set of death spiral adjectives. And, to quote Buffett again, "Let blockheads read what blockheads wrote."
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Don’t shoot the messenger. The media cannot make our situation look good. It’s difficult enough for the government papers to make Gyurcsany look like he knows what he’s doing (if anything).
I know you would prefer the Putin law for media: at least half of the news must be good news. Where would Hungarian papers get 50% good news these days? Make something up?
The end result of such lousy journalism is that Hungarians (regardless from which side) are convinced they are much worse off than the rest of the world. When it rains abroad, it pours in Hungary, somebody recently seriously told me in connection with the crisis. He actually was very offended when I told him that was nonsense. Victimizing yourself probably is a nice feeling, in some way
I’m slightly amazed at the EU’s figures for Hungary. Their forecasts for the UK and Germany don’t surprise me – they are in line with the broad consensus (though for what its worth, I think both the UK and Germany are in deeper trouble – for different reasons – than these forecasts suggest).
What surprises me is that we know the Hungarian economy will move with the German – for its manufacturing sector is closely tied to Germany. I can’t imagine circumstances in which Hungary would fare significantly better than Germany. And the reasons the EU gives are highly suspect ….
There isn’t an economic stimulus in Hungary. The country has to cut its deficit from an estimated 3.3% of GDP to around 2.6% in circumstances of a 1% overall GDP contraction. The EU is bringing forward financing for certain projects to counter this – but this only will help beyond 2009 – in the short-term it makes the deficit target more difficult to achieve, for the Hungarian government is required to co-fund most of these projects, and this co-funding is counted as part of the budget (and thus the deficit – remember the rulings on highway construction)If more money is forthcoming, and Hungary wishes to take full advantage, it has to provide more co-funding, which in the short-term may mean more cuts, if it is to reach its deficit target. The government will end up taking money out of the economy, just as the financial crisis reverses the capital inflows that have been supporting the budget, and a lot of lending to households. The other bit of the explanation is even more strange. Falling inflation will only help if wages increase at a faster rate than that inflation. This wage rise will certainly not be present in the public sector, unless the EU thinks that Gaskó and co are likely to be more effective than I do. And looking at those factories being put on short-time working (with the attendant loss of bonuses)I don’t think this will happen in the competitive sector. If wages rise at a slower rate than inflation (and indeed we have deflation), then this will also send the economy into reverse.
I suppose the good news is that other states are going to have a harder time of it – the Baltics certainly, Romania and Bulgaria very probably, the UK faces the outright collapse of the sector that has driven its growth for the past 20 years and thus faces a long period of stagnation at the end of this – and Ireland, and Spain look to be in an especially parlous situation.
Mark “I’m slightly amazed at the EU’s figures for Hungary”
You’re not alone. The Hungarian government doesn’t believe it either.