When politics and economics meet

To what extent is there a relationship between politics and economics? The impact of politicians on the finances of a country is one of those areas that can appear somewhat fluid. When an economy is thriving, politicians in power are often quick to claim the credit.

A struggling economy, however, is rarely accepted by those in power as being a sign of errors by the government. Instead, attempts are usually made to blame problems on the global economy, or on issues faced by trading partners.

To a certain extent, this may simply be seen as reflecting the problems that so many people have with modern politicians. Is there a lack of straight talking here?

Last year saw the Hungarian General Election take place, with the usual build-up about how many changes might occur after the election. Viktor Orban was looking to maintain his position as Prime Minister, with his Fidesz party seeking to strengthen its already powerful grip on power. Indeed, the clear victory that had been achieved in the previous election had put Mr Orban in a position where he had a mandate to make constitutional changes.

His leadership appears to have become a cause for concern for a number of Western governments. There had been a suspicion that he had been able to adopt an increasingly authoritarian position and it was noted that he had recently praised the economic performance of a number of nations, including China and Russia.

So where did this leave the likely economic situation? Entering the election, there appeared to be agreement among many analysts that Mr Orban would retain his position. This would provide a sense of stability, despite the concerns of some outsiders.

What transpired was, if anything, to be a strengthening of the Prime Minister’s position, with his party successfully defending seats in April and then following that up with local election successes later in the year. As a result, the Hungarian Prime Minister and his party have a renewed mandate until 2018. How has that been reflected in the reactions of markets in Hungary? What impact has there been on the country’s economy as a whole?

Hungary’s annual GDP growth rate for the past year stands at a respectable 3.4%, with the unemployment rate continuing to be very low. The main index for the Hungarian stock exchange, meanwhile, has witnessed a 13% rise in the year since the election.

So the performance indicators all point to a strengthening positioning. But is this anything more than a coincidence?

If you want to understand the impact of politics on the economy of any country or on the performance of any business, then it’s vital that you should follow the situation carefully. When attempting to invest overseas, it becomes even more critical.

 

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