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Hungary: Economic Outlook Depends on Policies

Highlights
CapitalBudapest
Population9.8 million
CurrencyHungarian Forint
Official languageHungarian
Form of governmentRepublic

 

Major Exports (% of total, 2016)Major Imports (% of total, 2016)
Machinery & equipment (57.9%)Machinery & equipment (49.8%)
Manufactured goods (31.3%)Manufactured goods (36.6%)
Food, beverages & tobacco (7.1%)Fuels & energy (6.4%)
Top Three Export Markets (% of total, 2016)Top Three Import Markets (% of total, 2016)
Germany (26.2%)Germany (24.9%)
Romania (4.7%)China (6.5%)
Slovakia (4.6%)Austria (6.0%)

Source: Economist Intelligence Unit (www.eiu.com)

Political Highlights

Hungary is a parliamentary republic. It has a single-chamber parliament whose 199 members are elected by voters every four years. The Fidesz – Hungarian Civic Union (Fidesz) government led by Prime Minister Viktor Orbán, now in its second term, continues to dominate the political scene with a tough nationalist stance. The next parliamentary election is scheduled for 2018 and Fidesz appears to be in a strong position to retain office. Its overall aim is to maintain its electoral base and prevent further expansion of support for the far-right Jobbik party.

Hungary joined the European Union (EU) in 2004. Over the past few years, Budapest has clashed with Brussels on a range of issues from the economy to immigration. The EU objects to Hungary's tight controls on asylum seekers and non-governmental organisations (NGOs), as well as to a higher education law. The government’s pro-Russian tilt has also raised concerns from the EU. Russia supplies over 70% of Hungary’s natural gas and has given Hungary a EUR10 billion loan to expand a nuclear power plant. And within the EU, Hungary has been one of the least supportive of the economic sanctions imposed over Russia’s actions in Ukraine.

Economic Trend

Economic Indicators2014
2015
2016
2017^
2018^
Nominal GDP (USD bn)139.2121.6124.2128.8139.5
Real GDP growth (%)4.03.01.93.43.5
GDP per capita (US$)14,08012,33012,64013,16014,300
Inflation (%)0.00.10.52.83.1
Budget balance (% of GDP)-2.1-1.6-1.8-2.5-2.7
Current account balance (% of GDP)2.03.34.93.72.5
Government debt (% of GDP)75.774.874.173.973.1
External debt (% of GDP)104.4104.8105.7*99.994.3

* Estimates ^ Forecasts
Source: Economist Intelligence Unit (www.eiu.com)

Hungary has a per capita income nearly 60% of the EU average. Proximity to Germany, Europe’s largest economy, and relatively low labour cost have made Hungary an important part of the German-Central European supply chain. Exports account for over 90% of GDP with the EU being the largest market. Over the past few years, Hungary succeeded in continuous growth and debt reduction. Growth was supported by utilisation of EU funds, favourable external environment, as well as accommodative monetary and fiscal policies. After a weaker growth in 2016, economic growth is forecast to pick up in 2017, driven by robust private consumption and rebounding investment.

Hungary’s external and public debt levels are still high despite steady decline. International Monetary Fund forecasts that financing needs to be around 20% of GDP. At the same time, perceptions of Hungary’s business environment have worsened due to unpredictability of policymaking. In recent years, the government has taken a more nationalist and populist approach towards economic management and has implemented unorthodox economic policies. Parliamentary elections scheduled for Spring 2018 could increase pressure for more interventions in the economy. As Hungarians increasingly seek work abroad, shortages of highly educated and skilled labour have become one of the key binding constraints on growth.

Hungary has yet to become a member of the euro area and the forint is not yet within the Exchange Rate Mechanism, one of the convergence criteria for entry to the euro area. For now, Hungary does not have a target date to adopt the euro.

Chart: Hong Kong total exports to Hungary
Chart: Hong Kong total exports to Hungary

Hong Kong-Hungary Trade

Total exports from Hong Kong to Hungary increased by 9.0% from HK$12,255 million in 2015 to HK$13,355 million in 2016. The top three export categories to Hungary were: (1) telecommunications, audio & video equipment (+6.4%), (2) electrical machinery, apparatus & appliances, & parts (+2.5%), and (3) office machines & computers (+48.1%), which represented 92.7% of total exports to Hungary.

ECIC Underwriting Experience

The HKECIC imposes no restrictions on covering Hungarian buyers. The Corporation’s underwriting experience on Hungary has been satisfactory, with no claim payment or payment difficulty case reported from July 2016 to June 2017.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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