Orthodox vs. unorthodox, Part Two

Earlier I compared EU/IMF  bad boy Hungary’s economic performance since 2010 to  EU/IMF good boy Portugal.   Now I’m doing the very same comparison between  EU/IMF bad boy Hungary and   EU/IMF good boy Rumania.  Like I tried to point it out then, the previous comparison had its limitations and it wasn’t absolutely conclusive (yet).  This one isn’t going to be “perfect” either.

The population of Rumania  is  about twice that of Hungary’s (20 millions vs. 10 millions) and its present day area is twice as big, too (238,000 square km vs. 93,000 square km).  They are neighbouring countries and both are peripheral to the core economies of Europe.  Neither country belongs to the  Euro zone. Hungary’s currency is called the Hungarian Forint and Rumania’s currency is called the Rumanian Lei.    Rumania belongs to Eastern Europe culturally (though Transylvania may be considered Central Europe due to its history), that is Rumania is the cultural realm of Orthodox (Byzantine) Christianity. Hungary belongs to Central Europe culturally, that is Hungary’s culture is based on Western Christianity (both Catholic and Protestant!)  Rumania’s GDP per capita was  6200 EUR (8500 USD) in 2012 and Hungary’s was  9800 EUR (13400 USD).    Here are a lot more data to compare.

Both countries had Communist dictatorships until 1990. Though Hungary’s was a lot more lax  one than the totalitarian dictatorship Rumania had.  Hungary’s transition to democracy was a negotiated, peaceful one, while Rumania’s dictatorship ended with bloodshed, a revolution which was sparked by the courage of an ethnic Transylvanian Hungarian Protestant priest, László Tőkés.  So there are a lot of similarities and differences between the two countries.

Another difference is that Rumania, just like Portugal did, as I wrote in the first part, chose to follow the EU/IMF economic recipes in 2010 and Hungary chose to rebel against them.

So let’s see the same data  again, let’s see  how those economic figures, and  with special regard to  the ones important for people’s everyday life, have changed in good boy Rumania and in bad boy Hungary since 2010.    First let’s review some basic major figures which are somewhat indicative of how these economies were doing in 2010 and how they are doing now:

Annual GDP growth

Kudos to Rumania, their GDP growth is more robust than Hungary’s

What about the public debt to GDP ratio?

Government debt

Hungary’s public debt seems to have become stagnant, Rumania’s seem to be on the rise. However Rumania’s debt is way much lower than Hungary’s!

A positive trade balance means you sell more than  you buy.  A negative one, like the US has with China, means you get indebted.

Balance of trade

Unlike Hungary which has been having record high trade balance surpluses, Rumania runs a big trade balance deficit.

Now let’s see those figure again which directly affect people’s lives.    As far the the inflation rate figures go, I think it’s all right to call it a draw.

 Inflation rate

Unemployment rate is something which really affects people. Unemployment at a young age and long term unemployment are especially devastating. The situation in both  countries seems to be similar to me.  Well, it’s not particularly good.

Youth unemployment rate

Long term unemployment seems to get somewhat worse in Rumania and it seems to have improved somewhat in Hungary.

Long term unemployment rateThe overall unemployment rate seems to be comparable, and stagnant, in both countries.

Unemployment rate

And what about the wages and the income tax which also directly affect people? The wages are rising in both countries.

Wages

The dynamics of the wage change looks pretty much the same to me.

Rumania introduced a flat rate 16% personal income tax much earlier than Hungary. So now this is the same in both countries.

Personal income tax rate

Let’s see the construction output as in the previous post:

Construction output

This looks to be the same, too.

Unfortunately tradingeconomics.com doesn’t have data on the foreign direct investments in Rumania.

The corporate tax rates are identical in both countries:

Corporate tax rate

The comparison with Rumania seems to produce a lot less clear picture than the comparison with Portugal. Rumania is doing better in some respect and Hungary does in some other.  I think it’ll be well worth doing some more comparison, probably also along some other lines, in a year or so.

Orthodox vs. unorthodox

Portugal is comparable to Hungary both in population  (10 million people) and in territory (92,000 and 93000 square km respectively).  Both countries are peripheral to the core economies of Europe.  The differences are significant though. Portugal is a member of the Euro zone and Hungary has its own currency (Hungarian Forints).    Portugal is a Mediterranean country with an Atlantic Ocean shore, Hungary is a land-locked country in Central Europe.  So the culture and the history are very different, too.  Portugal’s GDP per capita was 20,180 USD in 2012 and Hungary’s was only 12,620 USD.     Another difference is that Portugal chose to follow the EU/IMF economic recipes in 2010 but Hungary chose to rebel against them.

Still, let’s see some quick comparisons how some economic figures, and especially the ones important for people’s everyday life, have changed in good boy Portugal and in bad boy Hungary since then.    First let’s review some basic, major figures which are somewhat indicative of how these economies were doing in 2010 and how they are doing now:

GDP growth in Portugal and Hungary

Unlike in Portugal’s,  Hungary’s GDP starts to grow

seems to decline...

Hungary’s external debt seems to decline…

... seems to look worse and worse...

Portugal’s external debt problem seems to get worse…

A positive trade balance means you sell more than  you buy.  Hungary’s trade balance was always negative prior to 2009 but Hungary has been producing big pluses since then.

Balance of trade (exports minus imports)

While Portugal’s trade balance doesn’t show any improvement, Hungary’s balance of trade looks great

Now let’s see those figure which directly affect people’s lives.  While Hungary still had a relatively high inflation in 2010, Portugal had a very low inflation in 2010.  Portugal experienced a peak  in the meantime but  their inflation rate is back to nearly zero  again.  Inflation has  decreased to nearly zero in Hungary  only recently.

Consumer Price Index in Portugal and Hungary

Consumer Price Index in Portugal and Hungary

Unemployment rate is something which really affects people. Unemployment at a young age and long term unemployment are especially devastating.

Young people's unemployment used to be the same, now it's much worse in Portugal than in Hungary

Young people’s unemployment used to be worse in Hungary  in 2010 than in Portugal, now one can put it the other way around

... just like the situation with long term unemployment...

… just like regarding the situation with long term unemployment…

And the overall unemployment rate shows the same picture.

And the overall unemployment rate shows the same picture.

And what about the wages and the income tax which also directly affect people?

I can see some emerging pattern here, too.

I can see some emerging pattern here, too.

Portuguese  income tax up, Hungarian income tax down

Portuguese income tax up,
Hungarian income tax down

Maybe the progress happened at the expense of the business sector in general? Let’s see the construction output

The black line belongs to Portugal

The black line belongs to Portugal

or foreign direct investments:

The blue dotted line belongs to Hungary.

The blue dotted line belongs to Hungary.

or the corporate tax rate:

The constant blue line shows the Hungarian data

The constant blue line shows the Hungarian data

Well, let me not draw the final conclusion yet that the EU/IMF orthodoxy is a complete failure and the Hungarian “unorthodoxy” is a complete success because the jury is still out on this. Let’s regard these charts instead as a report after three years on the progress of a 10-20 year race.  To filter out the effect of Portugal’s having the Euro, which I think is largely responsible for the troubles in Portugal,  and Hungary’s having its own currency, I’ll have to do a similar comparison with ‘good boy’ Romania… and caution will be required there, too.

%d bloggers like this: