The Presidium of the Hungarian Economic Association published its main findings of the 55th Itinerant Conference of Economists.
The 55th Itinerant Conference of Economists held by the Hungarian Economic Association in Eger on 7-9 September 2017 turned out to be highly successful. During the three-day conference more than 160 speakers shared their thoughts in the framework of two plenary sessions and 17 section meetings with an audience of almost 900 Hungarian economists living in and outside the country. Consequently the conference established new records in terms of number of participants, number of speakers and number of sections as well.
Similarly to former years, the speakers of the plenary sessions at this year’s conference included economic and monetary policy makers, dominant actors of the economic sphere, top financial executives, economic researchers, corporate executives and members of the Government as well. In addition to traditional subjects such as finances, economic policy and EU funds, the speakers of the 17 thematic sections also addressed specific issues including the current situation of the wine sector, the preservation and use of historical buildings, novelties of the fintech sector as well as the latest news on sports financing.
The dominant ‘horizontal’ issues discussed at the 55th Itinerant Conference of Economists included competitiveness, innovation and education: most speakers agreed that the key factors in the economic competitiveness of Hungary were innovation, enhanced productivity and improvement of the educational system.
On behalf of the Presidency of the Hungarian Economic Association we would like to recommend the following findings and proposals of the conference to be considered by Hungarian economic and monetary policy makers and other dominant actors.
‘Competitive export is the focal point
of sustainable growth and balance.’
Participation in the international economic processes is essential for Hungary due to the fact that the country’s development is primarily determined at company level. Therefore it is particularly important to improve Hungary’s position in the global value chains in addition to enhancing the role of domestic know-how, innovation and added value. The focal point of sustainable economic growth and balance is competitive export. In this respect the manufacturing industry and some key sectors such as the automotive industry have a critical role, although Hungary’s added value to these sectors and the accelerating impact on the domestic economy is still scant. These factors should be given more attention in the future development policy, with an enhanced role of economic policy in terms of establishing and promoting the required boundary conditions.
It is essential to ensure the special treatment of sectors with capital and knowledge intensive activities including the companies most concerned with technological development. Relaxing the traditional financing structure would provide an opportunity for these companies to achieve faster development and enhanced innovation in which capital market development is also essential. Financing from capital and ecosystem development represent specific areas requiring development that contribute to dynamic economic growth and more balanced financing structure, particularly to facilitate the generation change of Hungarian SMEs in addition to significantly reducing the current duality of economy. The latter represents national economic interest that could be a dominant competitiveness factor already in the short and medium term as well. The economic impacts of generation change in the small and medium enterprise sector should be analysed more extensively, in addition to developing an action plan to facilitate generation change, potentially with Government programmes as well.
Industry will be subject to a huge paradigm shift in the coming years: there will be unprecedented emphasis on awareness based approach and the integration of skilled human resources into the company structure in addition to ensuring deliberate full-scale development and support for the domestic value chains, thus encouraging future industries to establish themselves in Hungary’s economy. The implementation of the Irinyi Plan will be particularly important in order to ensure the faster development of specific sectors, providing them with adequate support and a suitable environment.
‘Hungary’s economy cannot be competitive
without a value creation approach,
based purely on assembly and trade.’
Technological modernisation and high added value are key instruments in strengthening global competitiveness and economic development. Hungary’s competitive advantage in the future cannot be based entirely on low wages: the Hungarian economy cannot be permanently competitive and developing without a value creation approach, relying purely on assembly and trade. The companies aspiring to be successful in the long run should build activities on digital foundation with novel approaches, renewing their respective organisations as well. The state has an important role in creating a social and economic policy environment that is capable of encouraging companies to manufacture products with high added value and international competitiveness.
The preparedness of the Hungarian enterprises for Industry 4.0 carries significant development potential, but the renewal of the sector requires simultaneous efforts involving substantial physical, intellectual and financial resources as well. In terms of Hungary’s competitiveness digitisation and its scale is vitally important whether for corporate or educational purposes. Therefore it is essential that the economic policy should devote appropriate attention and resources to digital development. Instead of delaying digitisation the industry, including in particular the SME sector, should learn to integrate robotics. For this reason the potential role of state aid in fostering the digital capabilities of SMEs should be examined, in the absence of which the dominance of multinational companies would continue to prevail, further increasing the unwanted dual feature of economy. This kind of cooperation requires the development of capacities to adopt and use new technologies already at elementary educational level. It would be equally important to ensure this IT approach and the relevant skills in the framework of public education, integrating them in the basic knowledge of students. The key to resolving the labour problems of the industrial sector should be improving the quality of training and encouraging lifelong learning.
‘It is essential to further reduce the burdens of employees,
expand the scale of atypical employment
and enhance dual training.’
The fourth industrial revolution will result in emerging demand for new professions, and in the absence of timely measures taken by the educational system severe shortage of professionals could be expected in the coming years. The cooperation between the educational sector and the labour market should be further enhanced due to the fact that the shortage of professionals in the specific sectors could present an obstacle to economic and industrial development.
A large proportion of companies is affected by labour shortage and quite a few developments fail to take place due to inadequate labour quality despite the higher wage levels. In the long term the main issue faced by the labour market in Hungary will remain whether education, vocational training and adult learning could create the kind of workforce that would be capable to meet the global demands of the leading sectors. It is also essential to further reduce the burdens on employees and to expand the scale of atypical employment (part-time work, telework, flexible working hours, hired labour, etc.). The institution system should be able to respond quickly and flexibly to the challenges related mostly to Generation Z, with openness to new opportunities and innovation and continued operative relationship with the market players facilitated by dual training. To achieve this goal a stable higher education development strategy would also be required.
In the Industry 4.0 framework robotisation began to take place in Hungary as well, providing further opportunities for innovative companies in Central and Eastern Europe to get into the focus of multinational companies once more. At the same time, automation and robot technology could result in repositioning on the labour market already in the medium or even shorter term: the jobs consisting of simple work processes that could be easily automated will probably cease to exists, along with increasing demand for specific skilled workforce. Progress could be achieved by digital competency development in education, in addition to developing the infrastructure/equipment available for companies and providing both direct and indirect support for SMEs.
‘Adequately targeted EU support could contribute
to improving the economic condition of Hungary.’
The strengthening economy in Hungary provides an appropriate background for the EU funds in order to efficiently and quickly reach the required targets, simultaneously working the other way as well: the adequately targeted funds contribute to improving the condition of Hungary’s economy. It is important due to the fact that the EU is currently facing multiple internal and external challenges, and the financial budget of the post-2020 period will have to be developed in this rather uncertain environment.
Hungary has a specific interest in demonstrating that by integrating the less developed regions the cohesion policy provides significant contribution not only to the growth of the specific member states but also to the economic stability of the whole EU.
The common agricultural policy expected for the post-2020 period should retain the current budgetary framework by maintaining the well-established instruments and scale of support which represents a fundamental interest for all of us. Consequently the continued provision of area payments and rural development funds including investment type developments is well desired.
At the same time it would be necessary to prepare for an adverse scenario as well including significantly reduced or terminated non-refundable subsidies for Hungary in the post-2020 period. The desired economic growth should be ensured by enhancing loan guarantee funds and fostering lending along with more flexible lending conditions.
The introduction of the euro represents an important task due to close economic relationships within the community as well as the undertaken specific commitment which requires adequately developed economy, and therefore careful preparation for introducing the euro will represent a key task for Hungary’s economic policy in the coming years.
‘Monetary policy with extended maneuverability
and harmonised fiscal policy
should be able to support competitive growth.’
Monetary policy has been able to successfully contribute to economic recovery based on extended maneuverability and a combination of traditional and non-traditional tools. However, we should be aware of the limited capacities offered by monetary policy as well as the fact that fiscal policy contribution is also required for competitive growth and an efficient anticyclical economic policy.
‘The key challenges faced by the banks include digitisation,
low interest rates and dynamically changing customer needs.’
Changing the business model is an essential requirement for banks; as a result of the transformed industrial environment the banks are forced to adapt to a recently developed business climate with unprecedented speed. Revenue growth within the banking sector decreased globally with extremely unfavourable loan-to-deposit ratios and profit making conditions.
The most important challenges faced by the Hungarian commercial banks include digitisation, low interest rates, dynamically changing customer needs as well as the profit expectations of the investors. The exceptional return on equity realised last year was partly due to ad hoc reasons not likely to remain sustainable in the long run due to upward pressure on costs and downward pressure on revenues. As regards digitisation it is also important to note that the implementation of successful innovations in Hungary depends not only on the banks and their customers but on the regulatory authorities as well.
In terms of retail lending the Hungarian banking executives are mostly optimistic about the future; they unanimously agree that there is potential for growth in retail lending without additional risks involved.
‘Fossil fuel consumption could be reduced primarily by
more efficient use and increased awareness of reuse.’
Although climate change makes it a key responsibility, the potential for reducing carbon emission in Hungary is still limited. Carbon dioxide emission and fossil fuel consumption could be reduced primarily by more efficient use and increased awareness of reuse.
Most governments are globally committed to promoting renewable energy production despite the high level of unit costs. Government subsidies facilitated significant investments in the renewable energy market, resulting in drastic cost reduction and development primarily in wind and solar plant capacities. At the same time it created volatile electricity market conditions and unstable industrial environment mainly for producers relying on traditional energy sources.
Electric power generation in Hungary based on renewable sources is currently well below the European average, but the domestic targets established for 2020 appear increasingly achievable. Flexible production capacities are becoming more appreciated in Hungary as well: flexibility and availability will be of key importance in future pricing. The regulatory authorities will have to pay particular attention to setting adequate incentives in future.
‘The competition with neighbouring countries to
become a logistics centre for Chinese products is keen.’
Regular railway container service has been recently introduced between China and Hungary. As a result the delivery time of Chinese products dropped by half providing an opportunity for Hungary to become a gateway to Europe on this market. The competition with neighbouring countries to become a logistics centre for Chinese products is keen. Our current competitive advantage is primarily based on modern customs clearance solutions provided by the Hungarian Tax and Customs Administration.
Due to railway transport Hungary could offer a long-term competitive alternative to sea transport. However, it would require close cooperation from all players (railways, shipping contractors, terminals and authorities) including public and private companies with high-level modern approach. Therefore the further modernisation of the railway network and the capacity extension of terminals represent an important task.
‘More attention should be paid to environmentally conscious
organic farming and the development of short local supply chains.’
In addition to traditional tools supporting efficiency and economy in the agricultural sector the adaptation to consumer needs and sales processes should also be supported. Currently livestock breeding and horticulture are given beneficiary treatment. The increased level of support facilitates preparation for a growing competition. Integration and cooperation should be given further assistance and support in future as widely as possible with special attention to the demands of specific consumer groups including environmentally conscious organic farming, the development of short local supply chains, as well as digitisation within the sector.
Resource development in the agricultural sector including land, machinery and equipment has been given special attention recently, with significantly less emphasis on the development of human resources. In addition to innovation support special attention should be paid to the development of human capacities with adequate competence and skills in using new technologies.
Budapest, 30 November 2017
Hungarian Economic Association
Hungarian Economic Association