East-Central Europe

The Hungarian economy as reflected in the World Bank’s 2012 GNI per capita figures

Each year on July 1 the World Bank revises its classification of the world’s economies based on estimates of gross national income (GNI) per capita for the previous year. The current income classifications by GNI per capita are as follows: low income = $1,035 or less; lower middle income = $1,036 to $4,085; upper middle income = $4,086 to $12,615; and high income = $12,616 or more.

If we take a look at the figures between 2008 and 2012 we find that until 2012 Hungary belonged (just barely) to the high income group. But last year the GNI per capita dropped below $12,616, the cutoff number. To be precise, Hungary’s GNI per capita income in 2012 was $12,390. With this drop Hungary joined the group of upper middle income countries and left the high income ones.

The World Bank list that summarizes the changes between 2008 and 2012 is revealing in more than one way.  Somewhat surprisingly, Hungary’s 2009 GNI ($12,980) was higher than the year before, but by 2010 it fell back to the 2008 level. The range over the first four years of the survey period, however, was not significant, as you can see from the graph below. By contrast, last year’s drop was substantial: from $12,860 down to $12,390. So, Hungarians are not living better.  It doesn’t matter what Viktor Orbán tells his people about the brilliance of Hungary’s economic policies that the whole world should imitate.

All of the countries in the region with the exception of Hungary improved their per capita GNI. Bulgaria, the poorest country in the region, moved up from $5,700 in 2008 to $6,870 in 2012. With the exception of 2010, Romania improved every year (from $8,050 to $8,420). Poland likewise–from $11,870 to $12,670–which means that Poland moved into the high income countries while Hungary dropped out of this elite group. Although Croatia’s per capita GNI declined somewhat in 2012, the country is safely in the high income zone with a figure over $13,000.

This chart, which was published in today’s Index, is telling. For instance, Slovakia was far ahead of Hungary between 2008 and 2011 and shot up even higher in 2012, reaching $17,170.

GNI/capita changes between 2003 and 2012 in the East-Central European Region / World Bank / Index
GNI per capita changes between 2003 and 2012 in the East-Central European Region / World Bank and Index

Sharp-eyed observers noticed that while there were thirteen countries globally that moved into a higher category, there were only two that dropped into a lower one: Southern Sudan and Hungary.

Opposition politicians immediately responded to the news. Csaba Molnár (DK) recalled that in Brussels at the latest summit Viktor Orbán indignantly said that he found it strange that all those countries that are so unsuccessful at handling their own economies criticize the only country in the European Union that is successful. Molnár called particular attention to Lithuania and Latvia, two countries in the region that managed to get into the high income category. Latvia’s figures are truly impressive: between 2008 and 2012 it went from $12,020 to $14,180. Lithuania also did well: $13,850 in 2012 as compared to $12,000 in 2008.

In the Hungarian miracle economy, it turns out that the deficit (as of June) is much higher than expected. Unless revenues increase dramatically in the rest of the year, Hungary’s deficit will not be under 3.0%. Actually, in the first five months the deficit reached 3.8%. As the case of Cyprus showed, the European Commission can easily put Hungary under the excessive deficit procedure again if it fails to meet its target, which would be an awful blow to the Orbán government.

In order to avoid such a calamity yet another austerity package might have to be introduced. And if the state of the treasury doesn’t improve, the planned increase in teachers’ salaries as of September 1 will have to be scrapped. As it is, the current budget doesn’t include the several billion forints that would be needed to give a modest salary raise to teachers. That may mean that Orbán’s plans for raising salaries just before the election might have to be abandoned. According to one of the trade union leaders, it is more than possible that the majority of teachers voted for Fidesz in 2010 because of its promise to raise the very low salaries of teachers. For three years nothing has happened and the teachers’ patience is running out. There are more than 100,000 teachers in Hungary. That’s an awful lot of voters whom Fidesz may lose.

MSZP suggested that the figures on poverty that were due to be released in June are being held back. Opposition politicians suspect that the figures are horrendous and that’s the reason for the delay. Whatever the cause, one suspects that poverty has risen sharply since the inauguration of the Orbán government. When will the Hungarian public reach a point of no return?

As for the government’s efforts to turn Hungarians against the European Union, they have not yet borne fruit. The majority of Hungarians still think that Hungary’s place is within the European Union. Some opposition politicians think that perhaps the 2014 election should be a kind of  referendum on Hungary’s membership in the Union. This might be a savvy political strategy. Especially if the opposition hammers home the dire consequences of leaving the EU and being isolated and locked inside the country’s borders after almost ten years of total freedom of movement across the 28-country Union. Show the people the changes that abandoning the Union would bring to their everyday lives–from an increase in the price of goods and an economic slowdown to needing visas to visit their relatives in Slovakia and Romania. I’m sure they would think twice before voting for a party that wants to keep the country totally independent. Independence has a price. Just as Hungary’s independence from Austria had a price. A very high price.