Tuesday June 16, 04:41 AM
Crisis-hit Hungary: the worst is yet to come
By Geza Molnar
BUDAPEST (AFP) - In Hungary, one of the countries hardest hit by the global financial crisis, most believe that the worst is yet to come, with the economy on the rack and facing more pain from severe austerity measures.
"I really don't know how we will survive the crisis," said Levente Benedekfi, a construction company owner who told AFP his business has been suffering terribly since the crisis hit full on late last year.
In 2008, the number of new apartments sold was half the 2007 figure, official figures show, and the outlook remains grim for 2009.
In Budapest alone, between 2,000 and 2,500 new sales are expected this year, compared to last year's already low figure of 7,000.
"While we usually sell between 10 and 15 apartments a month, we have sold altogether two flats in the last nine months," said Benedekfi, with 480 empty apartments on his hands.
"In addition, the company has a Swiss-franc-denominated debt of three billion forint (10.7 million euros, 15.1 million dollars), which we expected to pay back from the sale of the apartments," he said.
Many Hungarians borrowed heavily in foreign currencies because forint interest rates were higher but with the weakening of the Hungarian currency, monthly repayments have literally "exploded", said Benedekfi.
He and his associates were now planning to mortgage their own properties, "the family silver" as he put it, to try to survive.
The future is far from bright.
"The effects of the crisis have been spreading from the financial sector, through industries like car manufacturing to engulf services," David Nemeth, an analyst with ING Bank, told AFP.
"By now, the downturn has hit suppliers and subcontractors too, resulting in chains of debt, most frequently in the construction sector," Nemeth said.
Hungary was only saved from bankruptcy last October by a 20-billion-euro lifeline from the International Monetary Fund (IMF), the European Union and the World Bank.
In exchange, Budapest pledged to keep public spending under control so that its budget deficit would equal no more than 3.9 percent of Gross Domestic Product for 2009 and 3.8 percent for 2010.
The economy is predicted to shrink 6.7 percent this year and slightly less than 1.0 percent next year, according to government data.
The loan deal has helped stabilise the situation for the moment but at a heavy cost as recently installed Premier Gordon Bajnai was forced to introduce a swingeing series of austerity measures, effective from July.
To cut spending, the government scrapped bonus payments, froze wages in the public sector, reduced gas heating subsidies while sales taxes were increased.
State support for purchases of a new house, which could reach almost 14,000 euros for a family with three children, was also scrapped and further preferential loan schemes are likely to go next.
The downturn in the construction sector -- which shrank 4.2 percent in the first quarter compared to the same 2008 period -- was not worse only because of ongoing highway projects and the building of Budapest's fourth metro line, according to the central statistics office.
While investors, analysts and the IMF have lauded the government's measures, political analyst Peter Tolgyessy said the real cost of the crisis had yet to be felt.
"From July ... the effects will be devastating. Consumption will drop by eight to nine percent in the second half of the year," Tolgyessy estimated, pointing especially to a hike in value-added tax, from 20 to 25 percent.
"I am not too optimistic -- Hungarians are still in for some difficult times," commented ING Bank's David Nemeth.
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