Hungary The Recent Global Economic Crisis Economics Essay

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Introduction

My research will embrace Hungary's tourism industry; agriculture; banking sector and trading situation under the recent global economic crisis. First of all I will analyze Hungary comprehensively. Macroeconomic conditions are relatively in friendly standing because of the stabilization, which should result in an economic growth. I will outline the circumstances in my analysis (autumn of 2007 international economic risks). Because of the international recession, that Hungary is going through at the moment, this results in a slow growth and in a high inflation, therefore there is a risk that any efforts made to push the country on to a balanced growth will become more and more difficult. The remark is that the economic growth will slow down, which will eventually affect each and every region, even though differing in extents. The financial troubles stemming from the mortgage crisis have now resulted in the re-organization of the financial sector, the subsidence in economic growth has caused interest expectations to deviate, while the risk of a "cool off" in the real economy has ended up in a slower growth in international trade, with the positive changes in some relations and negative changes in others. Recession in 2010 may be deeper than we thought.

Banking sector

As the financial crisis run over Europe Hungary found itself extremely vulnerable. The country is burdened with heavy debt. Worse yet, the government financed past spending sprees, in good part, with foreign currency loans that are growing ever more expensive as its own currency founders. Average Hungarian people are also in huge trouble. They flocked in droves to banks here in the last several years for once-cheap loans in Swiss francs and Euros to buy their cars and houses. Now, they find themselves exposed to rising debt payments. When the crisis hit, investors concerned about the stability of Eastern European economies began pulling their money out of the country, and risk became reality: the forint began to drop, falling 10 percent against the euro and 13 percent against the Swiss franc this month which is so far a really high value in the past years. But Hungary's banks were making their decisions about offering foreign exchange loans before the economic crisis began buffeting Europe and raised questions about Eastern Europe in particular. The government has taken steps to stabilize its position in the midst of the credit crunch that has grown out of the crisis, lining up support last week from the International Monetary Fund and the European Central Bank. While experts said some countries, E.g. Slovakia, Czech Republic and Poland, had used their borrowing to expand their export capacity and long-term competitiveness, others, most notably the Baltic nations, had put more of their borrowing into houses and shopping malls. ( http://www.oxan.com/display.aspx?ItemID=DB147790 2008)

Tourism

Hungarian tourism diminishes because of the economic downturn. The number of tourists coming to the country considerably drops as well as the demand for business events. Hungarian economy is suffering heavily because of the global economic crisis. Reports about the bleak situation have filled pages of newspapers for some time. According to the accommodations loss, the number of guests in hotels fell noticeably over the first five months of this year. In the January-May period the number of visitors to the country dropped by more than 10 percent compared to the numbers from 2008. Also related to the Central Statistical Office the number of guest nights dropped by nearly 15 percent. The demand from the most important Hungarian source markets - Germany, Romania, and UK- has significantly declined. The highest fall was in the number of British guest nights - by 30 per cent. Not even the weak forint helped to improve the situation. Gross revenue from accommodation and related services was 10 percent down in the period. Foreigners' generated revenue was down to HUF 27.538 billion which is much more less (14 per cent) than in the same period a year before. The commercial accommodations majority had an occupancy rate of 32 percent in the period. The outlook is really depressive for the Hungarian tourism sector. Hungarians intend to spend less on their summer vacations than one year before. Only a few (8 per cent) of them plan vacation in the next three months and 68 per cent of Hungarians said they would not travel as tourists in the next twelve months at all. Approximately 75 per cent of those who plan vacation will travel within Hungary. Hungarian business tourism is also not doing very well. As the business opportunities diminish due to the crisis, business travelers stay at home or switch to electronic communication. Conferences are not that popular as they were prior to the crisis and companies spend less on their employees' business trips.

(http://www.euromonitor.com/Travel_and_Tourism_in_Hungary)

Agriculture and inbound goods and trade

A market research company Sonda Ipsos has issued a survey in which it is shown that more than half of the Hungarians (52%) choose Hungarian products if they can, 40% decide their choice based on the particular product in question and the remaining 8% are generally impartial about the product's origins. This treatment is the strongest when it comes to meat and dairy products, fruit and vegetables. As a result of the global economic crisis, 20% of those asked choose to buy Hungarian products more often, 69% have not changed their shopping habit and only 11% buy fewer Hungarian products. The motivation behind this shift is still unclear as Hungarian products are rarely significantly cheaper than those imported, especially from within the EU.

(http://ageconsearch.umn.edu/bitstream/47556/2/32ritter.pdf)

Trade in economic trends

The Hungarian economy slowed down in 2007. The country was affected by the financial crisis, a fact which was aggravated by its strong dependence on the European Union markets. In 2008, Hungary was hit by the financial crisis and the country was saved from bankruptcy by the International Monetary Fund which assigned it a 20 billion aid in euro and relaunch the plan, thus avoiding an social crisis and a precipitous drop in value of the national currency.

Main branches of industry

The main crops are cereal, fruits, vegetables and wine. The agricultural sector, which was predominant in the country's economy for many years now only represents slightly less than 5% of the GDP and employs 5% of the active population. The industrial sector contributes to one-third of the country's GDP and is very open to foreign investors. Automobile and electronics sectors are the two main sectors given that they account for 30% of the country's exports and generate 15% of the GDP. The services sector contributes nearly to two-thirds of the GDP. The global financial crisis had detrimental effects on Hungarian industries that work on the external market but also on the national market where demand was reduced.

International trade

Strong export growth has been sustained by a shift in the destination market, from European and U.S. markets to fast-growing emerging markets. However, Hungary has underperformed, especially in the value of the exports, as they have continued to decline since 2005. This tendency worsened with the crisis which affected all of Hungary's partners, which further contributed to the country's trade deficit. The European Union is by far Hungary's biggest economic partner. Hungary main exports are machinery and equipment (61,1%). Following the crisis the year 2009 shows a drop in exports, especially towards Germany. The number of those employed across the Hungarian economy has been falling steadily since May, according to figures released by the statistical office on December 17. Although the Hungarian authorities claimed in October that the country was a "victim of mistaken identity", Hungary is the first EU member state to have sought a stand-by loan from the IMF since financial turmoil hit Iceland in mid-2008. Recent figures indicate that the Hungarian economy is not in good shape, which was close to recession even before the liquidity crisis and will certainly be in recession in 2009.

(http://hungaryeconomywatch.blogspot.com/)

Business environment

Domestic tax rates are higher than in neighboring countries and of very high forint-denominated interest rates. In such competitor countries as Poland, Romania, Slovakia and Slovenia this rate is also much lower that's why Hungarian businesses have complained repeatedly.

Output and jobs

There is widespread agreement that the decline in industrial production in October -- when the crisis really started to bite. Industrial production trends are not likely to show signs of significant improvement, given the substantial deterioration in the euro-area's outlook, as the countries in the zone take up a large share of Hungary's exports. Since October the numbers of lay-offs are still growing, at construction businesses, and at automobile and electronics manufacturers (including Suzuki), indicate that a further decline in output is to be expected. However, there is another possibility that some small and medium-sized companies are just taking the opportunity to reduce headcount, during a period in which there has been a wave of well-publicized redundancies at major foreign-owned firms and at some state-owned businesses as well.

Foreign trade

In addition to the gloomy October output figures, there are other indicators of weakness in the Hungarian business cycle. Hungary posted a trade deficit of 76.5 million euro (110 million dollars) in October, according to KSH first estimate figures. This deficit compares with a surplus of 176.7 million euro in September and 103.5 million in October 2007. While there was a good agricultural season again in 2008 (unlike in 2007), and the better-than-usual agricultural output helped boost growth in GDP and exports, this very factor also reveals that the main sectors of the economy (services, industry and construction) are not doing well. The 50% growth in agriculture (the combined impact of last year's bad and this year's excellent weather) pulls the GDP index upwards by a full 2 percentage points. Without this, there would have been a 1% contraction year-on-year in the third quarter. All the other major sectors of the economy, including industry, the construction sector and services, are in technical recession. Hungary's real GDP growth slowed in the third quarter of 2008 to 1.0% year-on-year -- or 0.7% when the data are adjusted for calendar effects. That the main factor behind the limp economic growth was increased production in agriculture is not encouraging, since it is a volatile sector with output results highly dependent on the weather. The Hungarian economy is strongly affected by the impact of the crisis in global capital markets filtering down to productive sectors; the picture is therefore even gloomier for the fourth quarter, when the negative implications are expected to be even harsher. Business enterprises are also offering wage increases below the expected rise in the consumer price index for 2009 (4.5%). However, the result has already been tensions on the shop-floor and strikes. Employees at Budapest International Airport have been on strike since last week and railway staff since the weekend, although Budapest bus drivers called off yesterday's stoppage, after the government agreement to increase the city transport company's funding. All in all, the annual change in Hungarian GDP next year may turn out worse that the official forecast, which is for a contraction of 1% year-on-year. Some are forecasting a GDP contraction as severe as 3%. If the forint continues to be weaker than in recent years, then this may support exports of industrial goods, but the main export markets (Austria, Germany and Italy in particular) are unlikely to provide any strong demand for Hungarian-made products in the months to come.

All in all the economic crisis is spreading through Hungary from the financial sector to manufacturing industries and services. In addition to the gloomy October output figures, there are other indicators of weakness in the Hungarian business cycle. Hungary posted a trade deficit of 76.5 million euro (110 million dollars) in October, according to KSH first estimate figures. This deficit compares with a surplus of 176.7 million euro in September and 103.5 million in October 2007. While there was a good agricultural season again in 2008 (unlike in 2007), and the better-than-usual agricultural output helped boost growth in GDP and exports, this very factor also reveals that the main sectors of the economy (services, industry and construction) are not doing well. The 50% growth in agriculture (the combined impact of last year's bad and this year's excellent weather) pulls the GDP index upwards by a full 2 percentage points. Without this, there would have been a 1% contraction year-on-year in the third quarter. All the other major sectors of the economy, including industry, the construction sector and services, are in technical recession. Hungary's real GDP growth slowed in the third quarter of 2008 to 1.0% year-on-year -- or 0.7% when the data are adjusted for calendar effects. That the main factor behind the limp economic growth was increased production in agriculture is not encouraging, since it is a volatile sector with output results highly dependent on the weather. The Hungarian economy is strongly affected by the impact of the crisis in global capital markets filtering down to productive sectors; the picture is therefore even gloomier for the fourth quarter, when the negative implications are expected to be even harsher. Business enterprises are also offering wage In addition to the gloomy October output figures, there are other indicators of weakness in the Hungarian business cycle. Hungary posted a trade deficit of 76.5 million euro (110 million dollars) in October, according to KSH first estimate figures. This deficit compares with a surplus of 176.7 million euro in September and 103.5 million in October 2007. While there was a good agricultural season again in 2008 (unlike in 2007), and the better-than-usual agricultural output helped boost growth in GDP and exports, this very factor also reveals that the main sectors of the economy (services, industry and construction) are not doing well. The 50% growth in agriculture (the combined impact of last year's bad and this year's excellent weather) pulls the GDP index upwards by a full 2 percentage points. Without this, there would have been a 1% contraction year-on-year in the third quarter. All the other major sectors of the economy, including industry, the construction sector and services, are in technical recession. Hungary's real GDP growth slowed in the third quarter of 2008 to 1.0% year-on-year -- or 0.7% when the data are adjusted for calendar effects. That the main factor behind the limp economic growth was increased production in agriculture is not encouraging, since it is a volatile sector with output results highly dependent on the weather. The Hungarian economy is strongly affected by the impact of the crisis in global capital markets filtering down to productive sectors; the picture is therefore even gloomier for the fourth quarter, when the negative implications are expected to be even harsher. Business enterprises are also offering wage

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.