SUMMARY OF KEY FINDINGS
Summary of key findings The Growth Report presents a comprehensive overview of the development path of the Hungarian economy over a longer horizon and the most important factors determining this path. The Magyar Nemzeti Bank analyses trends in economic growth in several regular publications, such as the Inflation report, the Report on the Balance of Payments, Competitiveness Report and the Financial Stability Report. These publications typically focus on the short- and medium-term developments in the economy, specifically analysing changes in variables which determine the stance of monetary policy. The objective of the annual Growth Report is to directly present the longer-term trajectory of Hungarian economic variables, sometimes over an entire business cycle, and the related critical factors, using both standard and alternative indicators. In addition to detailed examination of the available domestic data, we supplement our analyses with international and historical comparisons. In the 2019 Growth Report, we focus on a factor that can influence economic growth prospects over the very long term (a horizon of several decades or even centuries), covering several generations. This factor of production is the condition of the environment, i.e. the quality and volume of natural capital. Over the past more than two centuries mankind has gone through an unprecedented economic development. As a result of this, in Europe and in America in the 19th century and in the countries of the Far East in the latter half the 20th century previously inconceivable masses emerged from extreme poverty, infant mortality decreased and life expectancy increased. However, the sudden growth observed in past decades came at a price, as consumption-centric economic growth based on the use of hydrocarbons has caused irreversible damage to the Earth’s climate and biodiversity. As a result of all this, we are currently in 24th hours, so it's time to think differently about how the world economy works. Every year, the modern economy uses natural capital almost twice as fast as the Earth can renew it (mankind’s ecological footprint is 1.7), resulting in an ecological deficit. Accordingly, growth in the present structure is not sustainable, as future generations will face a reduced volume of natural resources (e.g. decreases in biodiversity, declines in reserves of certain rare earth metals) and deterioration in the quality of such resources (air pollution, natural disasters triggered by climate change, etc.). In the future, environmental factors may not only represent a scarce resource as directly used input, but the degradation of these factors (e.g. air pollution, extreme weather conditions) may also reduce the available volume and quality of other factors of production. Global warming and extreme weather anomalies have an unfavourable impact on the volume and quality of capital, while air pollution reduces the healthy years of life, increases the risk of illness, and thus also has negative impact on the labour force and the productivity thereof. In the 2019 Growth Report, we examine the fundamental question of whether permanent growth can exist without a degradation of environmental factors. According to the optimistic school of thought, on the economic growth path the degree of environmental pollution follows an inverted U curve, referred to in the specialist literature as the ‘Kuznets curve’. Although in certain countries the degree of pollution declines in parallel with progress in development, this is mostly attributable to the cross-border outsourcing of the polluting activities, i.e. the Kuznets curve may not actually be a global phenomenon. Thus, the process will not reverse automatically and unsustainable growth may occur, increasing real economic costs in the future. The results of the economic approaches and impact assessments analysing the effects of the climate vary on a wide scale. While according to the results of the classic Nordhaus economics, growth can be maintained even without an active climate policy and it supports only moderate emission reduction cycle, the school applying the Stern approach – nowadays regarded as consensus-based – perceives the economic damages as being enormous and proposes a new green industrial revolution to support green growth. The latest and most radical response to climate change is given by the macro ecological degrowth theories, according to which sustainability can only be achieved by changing consumer habits and reducing market competition. One key element of green growth policy is global solutions are needed in relation to emissions limits.
GROWTH REPORT • 2019
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