Crisis management: those taking action earlier will recover sooner

English2020. ápr. 11.Növekedé

Since the 2008 world financial crisis, countries have been preparing for the next big economic shock. It is now here and is bigger than we have imagined. In Hungary quick actions were taken by the government, which could help to mitigate the impact of COVID-19.

Capitalism is charachterised by periodicity i.e. the economy is either in growth or in recession. Since World War II this has changed: the greatest economic shocks are now triggered by events. Apart of the two oil price crises, the world economy was growing, until 2008.  

It is important to remember that the 2008 financial crisis was the result of a real estate bubble from the United States, which spilled-over to financial insitutions and eventually led to the crash of the global financial system. Its impacts was so strong that both experts and policy-makers were convinced that if we experienced another economic crisis in the future, it would be very similar to this one. 

But the crisis has arrived caused by a pandemic that is rapidly reshaping our world. The 2008 financial crisis hit countries in waves, thus, people did not feel its effects immediately. However, COVID-19 destroyed the demand and supply sides of the economy simultaneously. Tourism stopped as nobody travels and due to the lockdowns in several countries, many service sector businesses went bankrupt. 

This time, Hungary took actions quickly: the first group of measures are aimed at preventing a mass existential crisis especially targetting the ones who do not have signficiant savings or companies that do not own enough capital to survive months without operating.

The first and most important step is suspending interest payments of households and corporate loans until the end of this year. Hence, many will be able to save this amount and help them get through the months where they will not have any income. 

The bottom line is that, and this is proved by the experience from 2008, those who take action in a timely and thoughtful manner will recover from the crisis sooner. Obviously, it is also important that the steps resulting in extra budgetary expenses are taken in a way that avoid high levels of indebtedness. Fortunately, there is more time for the execution. In this particular case, it is espeically positive that this year’s budget was planned expecting an upcoming crisis and it includes reserves equivalent to 1% of the GDP. This means that roughly HUF 400 billion can be used without having to modify the budget.