Economical overview
Today, Hungary's economy is built around the
service sector - which accounts for two-thirds of gross
domestic product (GDP) and employs an equal share of the
workforce - and industry that accounts for less than
one-third of GDP. EU support has been an important
driver of economic development. Foreign investors have
been hesitant about uncertain legal conditions and
corruption, but many large companies have set up
manufacturing in Hungary.
In the past, having mainly supplied machinery, food
and medicines to the Soviet Union, Hungary, after the
fall of communism in 1989, invested in exporting
consumer goods and a wider range of agricultural goods.
From the mid-1990s, machinery, car parts and
electronics, as well as the re-export of imported goods
processed in the country, have dominated. Foreign trade
plays an important role in the economy.
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Countryaah.com:
Major imports by Hungary, covering a full list of top products imported by the country and trade value for each product category.
In the early 1990s, parts of both the industry and
the financial sector were sold to foreign stakeholders,
opening international markets and providing access to
foreign expertise. At the end of 1997, 50 percent of
the assets of Hungarian banks were in foreign hands and
in 2009 a full 81 percent.
During most of the 1990s and a few years into the
2000s, the country had steady growth, unemployment fell
and tax revenues increased. But developments reversed
and in 2008 GDP did not even grow by one percent.
Unstable finances and dependence on foreign investment
made Hungary vulnerable to the global financial crisis;
the economy shrank in 2009 by a full 6.7 percent.
Exports declined and the Hungarians could not afford to
consume as before, as loans became more difficult and
many lost their jobs.
From 2010, the Fidesz government decided to once
again increase state ownership in the banking sector and
also bought back some previously privatized state-owned
companies in areas that were considered "strategic".
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Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including HUN which represents the country of Hungary.
With the help of, among other things, a crisis loan
from the IMF, the EU and the World Bank, the economy
recovered helpfully. Growth remained low in 2010–2013,
but from 2014 a sharp rise began, which was mainly
driven by the increasing consumption of Hungarians.
Despite the positive development, however, GDP per
inhabitant has remained low, even compared to many other
Eastern and Central European countries.
In 2012, Hungary turned to the IMF for talks on new
loans, but negotiations were suspended when the
government could not accept IMF demands to restore the
central bank's independence. The government had been
criticized by, among other things, the EU for
legislative changes that undermined the central bank's
ability to act independently. In 2013, Hungary repaid in
advance what the country owed the IMF for the 2008
crisis loan.
Expensive support
Reducing the deficits in the state budget has been a
challenge for the country's governments. The deficits
have arisen, among other things, as a result of high
spending in the social sphere, which tended to increase
as governments were anxious to get voter support and
therefore invested in increased pensions, increases in
the public sector and tax rebates for large families
(see Calendar). Only a few months after the country's
entry into the EU in 2004, the Union placed Hungary
under financial surveillance, as the budget deficit
exceeded the allowable 3 percent of GDP. The central
government budget had then been drawn with increasing
deficits for several years.
The unwillingness to follow the IMF's recommendations
to reduce the budget deficit made straining Hungary's
contacts with international financial institutions. From
2012, however, Hungary managed to push down the deficit
and it has subsequently remained below the EU border.
In connection with the financial crisis, many
Hungarians were hit hard as interest rates rose on their
mortgages denominated in foreign currency during the
good years around the turn of the millennium. The loans
had become more expensive as the value of the forint
fell during the crisis years. In 2011, borrowers were
allowed to repay their loans in forint at a rate that
was significantly lower than the market rates and in
2014 they had to convert their loans in foreign currency
to forint. The measures were rejected by many economic
analysts, as well as by many other decisions by the
Orbán government, including the nationalization of the
equivalent of $ 13 billion in private pension funds that
would be used to improve government finances and the
introduction of a "flat" income tax, equal for all, of
16 percent. The low income tax, even for very wealthy
Hungarians, has been described as a way for Prime
Minister Orbán to secure their continued political
support. The flat tax has also been granted
constitutional status, which makes it very difficult for
a future government to change it.
The government also increased VAT to as much as 27
percent and introduced special taxes for financial
institutions, the energy and telecommunications sector,
advertising and the consumer trade. However, the bank
tax hit the financial sector hard and the government
decided in the mid-2010s to gradually lower the tax to
EU level until 2019. Two other controversial new laws in
the mid-2010s forced banks to indemnify private
borrowers' debts and gave the government the right to
decide on public spending without Parliament's approval.
Growth has continued to be good - one reason is that
EU support has enabled major construction projects,
including upgrading of road and electricity networks. B
rist of labor is also a factor that can disrupt the
economy. Several elements of the Hungarian government's
policy, not least a fierce campaign against the
financier and patron George Soros, also slow down the
willingness to cooperate from abroad. However, this does
not apply to interest from Russia, which has, among
other things, been given a Hungarian order for nuclear
power development.
Already in 1990 Germany took over Russia's role as
Hungary's most important single trading partner and
Germany still accounts for a large part of both exports
and imports. German large companies are leading among
those who have made investments in Hungary (see
Industry). In 2018, 82 percent of Hungary's exports to
other EU countries went, and 75 percent of imports came
from the EU. Outside the EU, in addition to Russia,
China has also become an important trade contact.
Tourism is an important source of income, not least
in foreign currency. A popular attraction is Budapest's
many thermal baths (swimming pools heated by hot
springs) and spa facilities. Medical tourism, which
means that foreign nationals come to Hungary for
comparatively inexpensive surgeries, dental care,
plastic surgery and more, is an increasingly large
market. Lake Balaton is the main tourist destination for
boating, swimming and fishing. In the Mátra Mountains in
the north there are hiking trails and winter sports
facilities.
There are over 130 km of navigable waterways
including Lake Balaton and Tisza, but most of the boat
traffic takes place on the Danube.
FACTS - FINANCE
GDP per person
US $ 15,939 (2018)
Total GDP
US $ 155,703 million (2018)
GDP growth
4.9 percent (2018)
Agriculture's share of GDP
3.6 percent (2018)
Manufacturing industry's share of GDP
19.4 percent (2018)
The service sector's share of GDP
54.4 percent (2018)
Inflation
3.4 percent (2019)
Government debt's share of GDP
70.8 percent (2018)
Currency
Forint
Merchandise exports
US $ 105,324 million (2018)
Imports
US $ 106,914 million (2018)
Current account
US $ 627 million (2018)
Commodity trade's share of GDP
159 percent (2018)
Main export goods
machinery and transport equipment, other industrial
goods, foodstuffs
Largest trading partner
Germany, Austria, Italy, Russia, Romania, Slovakia,
China
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