Many have criticized – legitimately – my last article about the Hungarian model, in which I compared professionally inappropriate GDP data. It was a mistake. An article by MNB was published on Alapblog as a response to this and other issues.
There is a silver lining in this situation because if we use the correct data, the results are still the same (we can see that the results in the MNB article clearly show that only one country’s growth was lower in the region than Hungary’s – just like my calculations indicated). So, the fact remains that between 2010 and 2016, the domestic growth was below the regional average, and the ‘Hungarian model’ has no added value whatsoever, so the final conclusion in my previous article is still valid.
The fundamental message of my entry was the following: first of all, even though we act like we reinvented the wheel, the economic measures that have taken place in Hungary can be described by standard models (which sometimes are good and sometimes are worse); second of all, the results do not seem too extraordinary so far since we are still lagging behind in the regional competition. This is a fact, though we could argue about the reasons.
Furthermore, MNB also criticizes that I do not or did not properly take into account certain influencing factors. This might be true; the future will decide who is right. There is no doubt, I have been wrong many times in the past, and anyone can find proofs of it on my blog (I will leave the reader to look them up), but the blog’s main purpose is to help clear my thoughts for myself: by the time I put my thoughts into writing, I understand them better and see them clearer – I am fully aware of the fact that nobody knows the absolute truth.
However, if there is anything that I did see correctly in the past years – or I even dare say that I saw the best among Hungarian economists – were the domestic growth expectations; so in this regard, I cannot entirely agree with the central bank’s forecasts.
Below, there are some quotes from earlier entries:
‘By 2012, I expect a European recess, a significant weakening of the euro, and persistently low interest rate level + ECB QE’
(Based on MNB’s June 2011 inflation report, the expected GDP growth for 2012 was +2.7%)
‘Nevertheless, I just cannot see why there would be no recess in Hungary next year? A particularly severe one.’
(MNB forecast in September 2011 for 2012: +1.5% domestic GDP growth. The actual data was 1.6%, so I think there indeed was a significant recess in Hungary.)
However, I was not always pessimistic; actually, when most people did not believe in the possibility of lower interest rates, I wrote the following:
‘Could the Hungarian base interest be 4%? If the current processes in the world keep continuing and there will be no significant unorthodoxy in the central bank’s policy this spring, then it is very much possible.’
(Back then, the base interest was 6.25%.)
‘There could easily be a 1-2% growth in 2013, and even 3% in 2014.’
(MNB’s growth forecasts in December 2012 were +0.5% for 2013 and +1.5% for 2014, which turned out to be +2.1% and +4% respectively.)
In the spring of 2013, I even started writing about the previous seven years of the lean kine (something I addressed in several of my articles), and then the following seven years of plenty, which have become an economic topos in Hungary. They also used to be so unbelievable that many of my economist colleagues called my attention to the potentials in psychotherapy and the modern tools of medical science.
‘We could argue about how significant the recovery will be, but I think that the seven lean years in Hungary are over, so the domestic share and property markets offer good opportunities to long-term investors.’
In the spring of 2014, I wrote this entry, where I encouraged everyone to buy real estate:
‘I have been quite optimistic about the domestic property market because I saw the signs of a severe and long-lasting low point, but only by now can I see the picture clearly: both from the side of demand and supply, a significant and persistent rising tendency with a price increase of at least 50% seems well-founded.’
This was so preposterous that it got the following responses:
‘He is an unorthodox guru; he ignores serious facts.’
‘Only Victors can say such nonsense.’
‘I think that after 20 years, the ‘guru’ has finally managed to save enough for a flat so he bought one… and this is how he tries to boost the market now…’
‘I hope Mr Zsiday will not be too greedy and spend too much on the property market. It would be a shame if he had no savings left for that fine excellence he is smoking.’
‘These articles could be written by FHB, OTP Real Estate etc. and they are very far from the truth.’
‘He is absolutely insane!’
‘He has no idea about the Hungarian reality!’
The reason why I included those entries and opinions about me (quite inappropriately) is to point out that (despite my many mistakes and errors) I am not one of the ‘doomsayers’, who are always pessimistic about the Hungarian economy and expect its collapse. In 2011, I rightly expected a recess, but since 2013, I have been especially optimistic about the prospects of the domestic economy (recovery, property market, wage explosion). However, unlike the central bank, I think that there are cyclical reasons behind it, while structurally the situation is not so good. The Hungarian economic policy, however, believes that the current growth is caused by decent structural changes, and that cyclical factors are less significant. We will have seen who is right only by the time these cyclical boosts run out (EU growth, Eastern European wage convergence, EU funds).
I am an investor, who tries to predict the development of the domestic and international economy and tendencies that influence markets couple of weeks, months, or years in advance. Doing this objectively is absolutely vital because if I am biased in my forecasts– for example by my political views – then I cannot avoid failing eventually.
So I always try to remain objective. Of course, this does not always happen, but if it does, then sometimes I still miss and do not see certain processes crystal clear, but this profession entails such mishaps. At those occasions, the primary goal is to adequately manage risks and decrease them. All in all, as I have already said on my blog under the introduction tab:
‘Important warning: these entries are not investment advices, but only my personal thoughts on the capital market. Writing helps me clear my thoughts and gain clarity, however, quite often, by the time I write things down, my opinion changes. For this reason, nobody shall think that these are more than just random ideas, so to say ‘market of ideas’. They might be thought-provoking, but shall not be taken too seriously. I do not take them so either…’
So this is why I write a blog about economics and markets – to clear my thoughts, and examine my ideas from different approaches. While writing, I develop working theories that can be applied in everyday life, and even though some of them turn out wrong, they are still useful to me.
MNB’s quoted inflation reports and their growth forecasts can be accessed here.