Doing Business In Hungary – Economy And GDP

Hungary is characterised by a medium-sized “upper-middle-income” economy that is structurally, politically and institutionally open. Boasting high economic growth and a GDP per capita of 7,902 EUR in 2012, the country is already an attractive destination for foreign direct investment (FDI). It’s a region that is rich in arable land with a population of 10 million people and a strong foundation of skilled and relatively low cost labour. Along with tax incentives for new enterprise, modern infrastructure and good telecommunications, there is much potential in doing business in Hungary, specifically across the development of the industrial and energy sectors.


While Hungary only accounts for one per cent of Europe’s total area, 50 per cent of this 93,030 spkm region is arable land and –in counting for 75 per cent of the 83 per cent of land suitable for cultivation –that is an exceptional figure. As a result, the country’s key sectors include a range of meat, vegetable and grain products in agriculture, along with its main industries across mining, metallurgy, construction materials, textiles, pharmaceuticals, chemical products and automotives. Due to the lack of domestic sources of energy and raw materials, there is opportunity for international investors looking to do business in Hungary within exports, while the developing financial sector also shows potential in being open to competition with limited State control.


Boasting a moderately free economy, Hungary offers a low 1.1 per cent tariff rate for trade and few non-tariff barriers for EU members. Capital markets are relatively developed and open for foreign investors, while, as a member of the Organisation for Economic Co-operation and Development (OECD) and the World Trade Organisation (WTO), the country has steadily shifted most of its trade to the West. That’s particularly after becoming a member of the EU in 2004, where trade within the single market stands at 70 per cent, and 80 per cent with the whole OECD. The private sector also accounts for 80 per cent of the country’s gross domestic product (GDP), while, in attracting over one-third of the total FDI for CEE, the cumulative FDI of Hungary stands at more than 50 billion EUR of its economy since 1989.


Following the economic slowdown of the 2009 GEC, the Hungarian economy showed signs of recovery in 2011, with decreasing tax rates and a moderate 1.7 per cent GDP growth. Meanwhile, the European Commission recently increased its projection for Hungarian growth in 2014 to 2.3 per cent. The rule of law and consistent protection of private property has contributed to Hungary’s long-term competitiveness and economic growth, which has been further developed by EU Cohesion funds of 21.9 billion EUR for the period of 2014 to 2020, while efforts towards improving fiscal transparency continue.


Hungary’s score saw a decline by 0.03 points, sitting at 67.0 and ranking the country as the 51st freest of the 2014 index. This was due to declines in property rights, the control of public spending and monetary freedom. However, freedom from corruption and fiscal freedom has improved, thus ranking the country 24th out of 43 in Europe, and placing it well above the world average. Over the 20-year history of the index, the Hungarian economy has advanced its economic freedom score by nearly 12 points, showing that the overall improvement across trade, financial, monetary and fiscal freedom, as well as management of public spending, is still primed for growth and improvement.


The Hungarian economy’s recovery from recession, begun in early 2013, is expected to remain modest. That’s mainly due to shortcomings in the labour and product markets but, while high foreign currency indebtedness remains a key vulnerability, access to international bond markets has greatly improved. Monetary easing has also helped, and cuts on policy rates have translated to rates on new loans, while the free refinancing for SME lending for banks is being extended.


There are still weaknesses in the economy of Hungary, across, public debt, retail and professional services and some inequality in access to wages and education. But the Hungarian government’s commitment to fiscal consolidation means the country has managed to keep its deficit below 3 per cent of the GDP and the potential for doing business in Hungary looks positive overall.


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