Economy of Hungary
From Wikipedia, the free encyclopedia
| Economy of Hungary | |
| Currency | Hungarian Forint (HUF) |
|---|---|
| Fiscal year | Calendar Year |
| Trade organisations | WTO, OECD, EU |
| Statistics | |
| GDP | $194 bn |
| GDP growth | 1.4% (2007) |
| GDP per capita | $19,799 (2008 IMF est.) |
| GDP by sector | agriculture (3%), industry (32%), services (64%) |
| Inflation (CPI) | 3.0% (February 2009)[1] |
| Unemployment | 8.4% (January 2009)[2] |
| Main industries | mining, metallurgy, construction materials, processed foods, textiles, chemicals (especially pharmaceuticals), motor vehicles |
| External | |
| Exports | $86 bn f.o.b. (2007 est.) |
| Export goods | machinery and equipment 61%, other manufactures 29%, food products 7%, raw materials 2%, fuels and electricity 2% |
| Imports | $86 bn f.o.b (2007 est.) |
| Import goods | machinery and equipment 52%, other manufactures 36%, fuels and electricity 8%, food products 3%, raw materials 2% (2003) |
| Main import partners | Germany 27%, Russia 8%, China 7%, Austria 6%, France 5%, Italy 5%, Netherlands 4%, Poland 4% (2006) |
| Gross External Debt | $143 billion (June 2007) |
| Public finances | |
| Public Debt | 70% of GDP |
| Revenues | $62 bn |
| Expenses | $70 bn |
| Economic aid | recipient, $302 million in available EU structural adjustment and cohesion funds (2004) |
| Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars |
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The Hungarian economy is a medium-sized, structurally, politically, and institutionally open economy in Central Europe and is part of the EU single market. Like most Eastern European economies, it experienced market liberalisation in the early 1990s as part of a transition away from communism. Today, Hungary is a full member of OECD and the World Trade Organization. OECD was the first international organization to accept Hungary as a full member in 1996, after six years of successful cooperation.
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[edit] History of the Hungarian Economy
[edit] Hungarian economy prior to the transition
The Hungarian to World War II was primarily oriented toward agriculture and small-scale manufacturing. Hungary's strategic position in Europe and its relative high lack of natural resources also have dictated a traditional reliance on foreign trade. For instance, its largest car manufacturer, Magomobil (maker of the Magosix), produced a total of a few thousand units.[3] In the early 1950s, the communist government forced rapid industrialization after the standard Stalinist pattern in an effort to encourage a more self-sufficient economy. Most economic activity was conducted by state-owned enterprises or cooperatives and state farms. In 1968, Stalinist self-sufficiency was replaced by the "New Economic Mechanism," which reopened Hungary to foreign trade, gave limited freedom to the workings of the market, and allowed a limited number of small businesses to operate in the services sector.
Although Hungary enjoyed one of the most liberal and economically advanced economies of the former Eastern bloc, both agriculture and industry began to suffer from a lack of investment in the 1970s, and Hungary's net foreign debt rose significantly—from $1 billion in 1973 to $15 billion in 1993—due largely to consumer subsidies and unprofitable state enterprises. In the face of economic stagnation, Hungary opted to try further liberalization by passing a joint venture law, instating an income tax, and joining the International Monetary Fund (IMF) and the World Bank. By 1988, Hungary had developed a two-tier banking system and had enacted significant corporate legislation which paved the way for the ambitious market-oriented reforms of the post-communist years.
[edit] Transition to a market economy
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After the fall of communism in Eastern Europe, the former Soviet satellites had to transition from a one-party, centrally-planned economy to a market economy with a multi-party political system. With the collapse of the Soviet Union, the Eastern Bloc countries suffered a significant loss in both markets for goods, and subsidizing from the Soviet Union.[citation needed] Hungary, for example, "lost nearly 70% of its export markets in Eastern and Central Europe." The loss of external markets in Hungary coupled with the loss of Soviet subsidizing left "800,000 unemployed people because all the unprofitable and unsalvageable factories had been closed."[4] Another form of Soviet subsidizing that greatly affected Hungary after the fall of communism was the loss of social welfare programs. Because of the lack of subsidizing and a need to reduce expenditures, many social programs in Hungary had to be cut in an attempt to lower spending.[citation needed] As a result, many people in Hungary suffered incredible hardships during the transition to a market economy. Following privatization and tax reductions on Hungarian businesses, unemployment suddenly rose to 12% in 1991 (it was 1,7% in 1990 ), gradually decreasing till 2001.[citation needed] Economic growth, after a fall in 1991 to -11,9%, gradually grew until the end of the 1990s at an average annual rate of 4,2%.[citation needed] With the stabilization of the new market economy, Hungary has experienced growth in foreign investment with a "cumulative foreign direct investment totaling more than $60 billion since 1989."[5]
The Antall government of 1990–94 began market reforms with price and trade liberation measures, a revamped tax system, and a nascent market-based banking system.[citation needed] By 1994, however, the costs of government overspending and hesitant privatization had become clearly visible. Cuts in consumer subsidies led to increases in the price of food, medicine, transportation services, and energy.[citation needed] Reduced exports to the former Soviet bloc and shrinking industrial output contributed to a sharp decline in GDP.[citation needed] Unemployment rose rapidly to about 12% in 1993. The external debt burden, one of the highest in Europe, reached 250% of annual export earnings, while the budget and current account deficits approached 10% of GDP.[citation needed] The devaluation of the currency (in order to support exports), without effective stabilization measures, such as indexation of wages, provoked an extremely high inflation rate, that in 1991 reached 35% and slightly decreased till 1994, growing again in 1995.[citation needed] In March 1995, the government of Prime Minister Gyula Horn implemented an austerity program, coupled with aggressive privatization of state-owned enterprises and an export-promoting exchange raw regime, to reduce indebtedness, cut the current account deficit, and shrink public spending. By the end of 1997 the consolidated public sector deficit decreased to 4.6% of GDP—with public sector spending falling from 62% of GDP to below 50%—the current account deficit was reduced to 2% of GDP, and government debt was paid down to 94% of annual export earnings.[citation needed]
Hungary's sovereign foreign currency debt issuance carries investment-grade ratings from all major credit-rating agencies, although recently the country was downgraded by Moody's, S&P and remains on negative outlook at Fitch.[citation needed] In 1995 Hungary's currency, the Forint (HUF), became convertible for all current account transactions, and subsequent to OECD membership in 1996, for almost all capital account transactions as well.[citation needed] Since 1995, Hungary has pegged the forint against a basket of currencies (in which the U.S. dollar is 30%), and the central rate against the basket is devalued at a preannounced rate, originally set at 0.8% per month, the Forint is now an entirely free-floating currency.[citation needed] The government privatization program ended on schedule in 1998: 80% of GDP is now produced by the private sector, and foreign owners control 70% of financial institutions, 66% of industry, 90% of telecommunications, and 50% of the trading sector.[citation needed]
After Hungary's GDP declined about 18% from 1990 to 1993 and grew only 1%–1.5% up to 1996, strong export performance has propelled GDP growth to 4.4% in 1997, with other macroeconomic indicators similarly improving.[citation needed] These successes allowed the government to concentrate in 1996 and 1997 on major structural reforms such as the implementation of a fully-funded pension system (partly modelled after Chile's pension system but enclosing major modifications), reform of higher education, and the creation of a national treasury.[citation needed] Remaining economic challenges include reducing fiscal deficits and inflation, maintaining stable external balances, and completing structural reforms of the tax system, health care, and local government financing.[citation needed] Recently, the overriding goal of Hungarian economic policy has been to prepare the country for entry into the European Union, which it joined on May 1st, 2004.[citation needed]
Prior to the change of regime in 1989, 65% of Hungary's trade was with Comecon countries.[citation needed] By the end of 1997, Hungary had shifted much of its trade to the West. Trade with EU countries and the OECD now comprises over 70% and 80% of the total, respectively.[citation needed] Germany is Hungary's single most important trading partner.[citation needed] The U.S. has become Hungary's sixth-largest export market, while Hungary is ranked as the 72d largest export market for the U.S.[citation needed] Bilateral trade between the two countries increased 46% in 1997 to more than $1 billion.[citation needed] The U.S. has extended to Hungary most-favored-nation status, the Generalized System of Preferences, Overseas Private Investment Corporation insurance, and access to the Export-Import Bank.[citation needed]
With about $18 billion in foreign direct investment (FDI) since 1989, Hungary has attracted over one-third of all FDI in central and eastern Europe, including the former Soviet Union.[citation needed] Of this, about $6 billion came from American companies.[citation needed] Foreign capital is attracted by skilled and relatively inexpensive labor, tax incentives, modern infrastructure, and a good telecommunications system.[citation needed]
By 2006 Hungary’s economic outlook had deteriorated. Wage growth had kept up with other nations in the region; however, this growth has largely been driven by increased government spending.[citation needed] This has resulted in the budget deficit ballooning to over 10% of annual GDP and inflation rates predicted to exceed 6%. This prompted Nouriel Roubini, a White House economist in the Clinton administration, to state that "Hungary is an accident waiting to happen."[6]
[edit] Hungarian economy today
In 2006 Prime Minister Ferenc Gyurcsány was reelected on a platform promising economic “reform without austerity.” However, after the elections in April 2006, the Socialist coalition under Prime Minister Ferenc Gyurcsany unveiled a package of austerity measures which were designed to reduce the budget deficit to 3% of GDP by 2008.
Hungary, as a member state of the European Union may seek to adopt the common European currency, the Euro. To achieve this, Hungary would need to fulfill the Maastricht criteria.
Because of the austerity program, the economy of Hungary slowed down in 2007. However, due to many large investments, GDP growth may improve to 2.8-4.0 percent in the second half of 2008. In foreign investments, Hungary has seen a shift from lower-value textile and food industry to investment in luxury vehicle production, renewable energy systems, high-end tourism, and information technology.
[edit] Physical properties
[edit] Natural Resources
Hungary's total land area is 93,030 km2 along with 690 km2 of water surface area which altogether makes up 1% of Europe's area.
Nearly 75% of Hungary's landscape consists of flat plains. Additional 20% of the country's area consists of foothills whose altitude is 400 m at the most; higher hills and water surface makes up the remaining 5%.
The two flat plains that take up three quarters of Hungary's area are the Great Hungarian Plain and the Little Hungarian Plain. Hungary's most significant natural resource is arable land. About 70% of the country's total territory is suitable for arable farming; of this portion, 72% (50% of the country's area) is covered by arable land. Hungary lacks extensive domestic sources of energy and raw materials needed for further industrial development.
19% of the country is covered by forests. These are located mainly in the foothills such as the Northern and the Transdanubian Medium Mountains, and the Alpokalja. The composition of forests is various; mostly oak or beech, but the rest include fir, willow, acacia and plane.
The major rivers of Hungary are the Danube and the Tisza. The Danube also flows through parts of Germany, Austria, Slovakia, Serbia, and Romania. It is navigable within Hungary for 418 km. The Tisza River is navigable for 444 km in the country. Hungary has three major lakes. Lake Balaton, the largest, is 78 km long and from 3 to 14 km wide, with an area of 592km2. Lake Balaton is Central Europe's largest lake and a prosperous tourist spot and recreation area. Its shallow waters offer summer bathing and during the winter its frozen surface provides facilities for winter sports. Smaller bodies of water include Lake Velence (26km2) in Fejér County and Lake Fertő (82km2 within Hungary).
In European terms, Hungary's underground water reserve is one of the largest. Hence the country is rich in brooks and hot springs as well as medicinal springs and spas; as of 2003, there are 1250 springs that provide water warmer than 30 degrees.[7] 90% of Hungary's drinking water is retrieved from such sources.[8]
[edit] Infrastructure
Hungary has 11 motorways.
[edit] Sectors
[edit] Agriculture
Agriculture accounted for 3% of GDP in 2007 and along with the food industry occupied 11,7% of the labor force (1997). The Hungarian agriculture is virtually self-sufficient and 20-25% of exports come from agriculture and related industries. About 10% of Hungary’s total area is under cultivation due to its favourable conditions including continental climate and the plains that make up about half of Hungary’s landscape. The most important crops are wheat, corn, sunflower, potato, sugar beet, rape and a wide variety of fruits (notably apple, peach, pear, watermelon, plum etc.). Hungary has several wine regions producing among others the world-wide famous white dessert wine Tokaji and the red Bull’s Blood. Another traditional alcoholic drink is a fruit brandy called pálinka.
Mainly cattle, pigs, poultry and sheep are raised in the country. The livestock includes the Hungarian Grey Cattle which is a major tourist attraction in the Hungarian National Park of Hortobágy. An important component of the country’s gastronomic heritage is foie gras with about 33000 farmers engaged in the industry. Hungary is the second largest world producer and the biggest exporter of foie gras (exporting mainly to France).
Another symbol of Hungarian agriculture and cuisine is the paprika (both sweet and hot types). The country is one of the leading paprika producers of the world with Szeged and Kalocsa being the centre of production.
[edit] Industry
[edit] Services
[edit] Currency
The currency of Hungary is the hungarian forint (HUF, Ft) A forint consists of 100 fillérs, however, these have not been in circulation since 1999, they are only used in accounting. There are five coins (5, 10, 20, 50, 100)[9] and seven banknotes (200, 500, 1000, 2000, 5000, 10000 and 20000)[10]. The 1 and 2 forint coins were withdrawn in 2008, yet prices remained the same as stores follow the official rounding scheme [11] for the final price.
[edit] The fulfillment of the Maastricht criteria
| Convergence criteria | Obligation to adopt 4 | Target date | Euro coins design | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Country 1 | Inflation rate² | Government finances | ERM II membership | Interest rate ³ | set by the country | recommended by the Commission | |||
| annual government deficit to GDP | gross government debt to GDP | ||||||||
| Reference value 5 | max 3.0% | max. 3% | max. 60% | min. 2 years | max 6.4% | NA | NA | NA | NA |
 Hungary |
3.5% | 2.6% | 69% | 0 years | 7.5% | yes | 2010-2014 | NA | in progress |
1 Current EU member states that have not yet adopted the Euro, candidates and official potential candidates.
² No more than 1.5% higher than the 3 best-performing EU member states.
³ No more than 2% higher than the 3 best-performing EU member states.
4 Formal obligation for Euro adoption in the country EU Treaty of Accession or the Framework for membership negotiations.
5 Values from May 2007 report [1]. To be updated each year.
The austerity measures introduced by the government are in part an attempt to fulfill the Maastricht-criteria.
The austerity measures include a 2% rise in social security contributions, half of which is paid by employees, and a large increase in the minimum rate of sales tax (levied on food and basic services) from 15 to 20%. While it was widely recognised that something needed to be done, investors have levelled criticism at the program for emphasizing tax increases as opposed to spending cuts.[citation needed]
The Hungarian Central Statistical Office reported a decrease in real wages in the first five months of 2007. Gross average income rose by 7%, while net average income increased by 1%. When adjusted for inflation, this corresponded to a 7% decline compared with real wages a year before. The drop was due mainly to the 2006 austerity package; however, state measures to combat the black economy may also have had an impact on pay developments.
Hungary's low employment rate remains a key structural handicap to achieving higher living standards. The government introduced useful measures in the key areas, namely early retirement, disability and old pensions.
[edit] Exchange rates
[edit] Socio-economic characteristics
[edit] Human capital
[edit] Social stratification
[edit] Institutional quality
[edit] State participation
[edit] Fiscal policy
[edit] Tax system
[edit] Monetary policy
[edit] External relations
[edit] The EU
Hungary joined the European Union on 05/01/2004 after a succesful referendum[12] among the EU-10. The EU's free trade system helps Hungary, as it is a reatively small country and thus needs export and import.
After the accession to the EU, Hungarian workers could immediatley go to work to Ireland, Sweden and the United Kingdom. Other countries imposed restrictions[13].
[edit] Rest of the world
[edit] 2008-2009 Financial Crisis
On 10 October 2008, the Forint dropped by 10%[14]
Many loans are made in Euro or Swiss Francs in Hungary.
On 27 October 2008, Hungary reached an agreement with the IMF and EU for a rescue package worth about US$20 billion.[15]
[edit] References
- ^ Consumer price quick report - Hungarian Central Statistical Office, March 11, 2009
- ^ Labor force and unemployment quick report - Hungarian Central Statistical Office, February 27, 2009
- ^ Georgano, G. N. Cars: Early and Vintage, 1886-1930. (London: Grange-Universal, 1985)
- ^ "The Political and Economic Transition in Hungary" (PDF). http://www.koed.hu/medit/endre.pdf.
- ^ "CIA - The World Factbook - Hungary". https://www.cia.gov/library/publications/the-world-factbook/geos/hu.html.
- ^ "Hungary faces enormous economic hurdles". USAToday. http://www.usatoday.com/money/world/2006-06-22-hungary-usat_x.htm. Retrieved on 2008-12-5.
- ^ http://www.kvvm.hu/szakmai/karmentes/kiadvanyok/fav/tvkm/tvkm04.htm
- ^ http://www.eduline.hu/segedanyagtalalatok.aspx/letolt/2971
- ^ http://www.forint.hu/engine.aspx?page=ermek1
- ^ http://www.forint.hu/engine.aspx?page=bankjegyek
- ^ http://english.forint.hu/engine.aspx?page=rounding
- ^ http://www.valasztas.hu/hu/ep2009/47/47_0.html
- ^ http://news.bbc.co.uk/2/hi/europe/3513889.stm
- ^ http://www.boursorama.com/international/detail_actu_intern.phtml?news=5958539
- ^ http://www.washingtonpost.com/wp-dyn/content/article/2008/10/27/AR2008102700469.html
Jon Adam: The transition to a market economy in Hungary
[edit] See also
- List of Hungarian companies
- List of banks in Hungary
- Budapest Stock Exchange
- BUX
- Economy of Europe
- Hungary
[edit] External links
- OECD's Hungary country web site
- OECD economic survey of Hungary
- Hungarian IT: Coping With Economic Transition And Globalisation
- The Political and Economic Transition in Hungary
- CIA The World Factbook
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