Hungary is performing well, considering the context of struggling economies globally. Admittedly, since enjoying the podium position for growth among the CEE nations in 2014, Hungary has registered a slowdown, but with 2.9% in 2015 and 2.2% for this year (forecast by Coface), it is still
benefitting from a moderately growing economy. Support from the EU budget will not boost Hungarian growth as much as it did in the previous two years – but with the acceleration of uptake of new EU funds, the positive effects will return next year. 2016 growth will be close to its potential (estimated at 2.5% by the National Bank of Hungary1 ), driven by private consumption, in turn strengthened by falling unemployment, higher disposable incomes, the public welfare programme and the resolution of problems surrounding foreign-currency mortgage loans. These all create opportunities for higher turnover for the retail sector, which is already benefitting from growing retail sales. The sector risk assessment provided in this Panorama shows that impacts are not only stemming from the country’s internal environment and business conditions but also from developments in foreign markets. This is the case for the metals sector, which is suffering from the negative effects of low international commodity prices, in contrast with the transport sector. The automotive sector has benefitted from increasing demand in its core markets.
The challenging budgetary situation and costly election promises have led the government to introduce measures aimed at increasing revenues. These measures, including sectorial taxes, have had a negative effect on companies. Although they were mainly designed to target foreignowned companies, local entreprisese have also suffered. The pace and quantity of taxes and quasi-taxes being introduced has made companies refrain from business expansion, due to perceived uncertainty on the business environment. The entire corporate sector is still deleveraging, although small and medium companies (SMEs) have received support from the Funding for Growth Scheme, with its low interest rate loans and the conversion of FX loans incurred in the past. Business sentiment is on track to improve, with companies more confident about the economic outlook and the introduction of stimulus measures. However, this will still take some time, due to the challenging times that corporates have been through. Coface’s decision to upgrade the country’s assessment to A4, in January this year, reflects its satisfactory economic growth and more favorable prospects for Hungarian companies, along with improved payment experiences. Nevertheless, Hungary still lags behind other peers in the Visegrad group, notably the Czech Republic, Poland and Slovakia – all of which enjoy A3 country risk assessments.
The Hungarian economy has entered into a solid growth phase. By 2014 there was no trace of the recession recorded just two years previously (chart 1) and the growth rate of 3.7% made Hungary the leader in terms of economic activity in the Central and Eastern Europe (CEE) region. This was also one of the highest growth rates in the entire European Union2. Hungary’s buoyant economic activity was the result of several factors. 2014 was a year of triple elections for Hungary – parliamentary, EU parliament and local. An effect of this has been the completion of a number of new and outstanding investment projects. There was strong support in the form of EU funds, which boosted fixed investments by 12% in 2014. Households benefitted from increased business activity and the more dynamic labour market. The unemployment rate fell from 10.2% in 2013, to 7.7% in 2014 - then down again, to 6.8% in 2015. This was partly due to a substantial enlargement in public workforce programmes and changes in calculations of the labour force residing outside the country. This significant reduction in unemployment was the highest in the whole of the EU last year.
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