Development of Internal Demand and Bank Lending

Abstract

The study discusses the unique features of the growth of the Hungarian economy, the weakness and lack of internal demand, and the lending activities of banks in that context. Although recovery from the economic crisis has been ongoing for more than a year in Hungary, growth has been almost exclusively driven by the processing industries producing for (predominantly German) exports, and by net exports on the absorption side of the GDP, while domestic demand has failed to pick up to this date. This specific feature of growth reflects the dual structure of the Hungarian economy: the isolated coexistence of the Hungarian sub-sidiaries of mostly large multinational corporations tied into the fabric of international commodity and services trade, and of the mostly non-exporting micro-, small and medium-sized enterprises; the rudimentary (or completely missing) supply and services relations between them; and the resulting smaller-than-necessary scope of the positive (economic, technological, and welfare) impacts of large multinational corporations operating in Hungary.