The government's macro forecast is much closer to reality now

HUNGARY - In Brief 05 May 2020 by Istvan Racz

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The government has delivered an annual update to its convergence program, the report which is due to be handed in to the EU Commission by end-April of each year. At first glance, it seems that the macro forecast included in the document is much closer to the realities of the ongoing Covid-19 crisis than the one given by the government as a first reaction a few weeks ago.In fact, the forecast offers three scenarios, depending on the period by which the Cover-19 epidemic will end - the 2nd, 3rd or 4th quarter of this year. The 2020 real GDP growth numbers attached to them are -3%, -5.6% and -7.3%. Of these, the first number appears to be the same as the one presented a few weeks ago, but it is now attached to the most optimistic scenario regarding the epidemic, which is actually more optimistic than the government's old base case (which assumed the end of the epidemic in Q3). In our latest report, we expected -8.8% for real GDP this year, on the assumption that the epidemic essentially ends in Q3. However, the government is now treating Q2 as the likely end of most existing Covid-19 restrictions, and so it is presenting -3% GDP growth as its base case. The difference from its earlier presentation is that there are now two alternative scenarios as well, which can automatically step in if the epidemic lasts longer than in their base case, as is now likely to happen with the highest probability.Regarding the labor market, the unemployment rate would go from 3.4% last year to 5.6% in 2020, according to the government's baseline scenario. This looks very mild, but please, be careful: these numbers represent annual averages, and the government expects its social employment pro...