Less Vulnerable, More Stable: Hungary’s Recovery Beating the Odds

The numbers are in, and 2015 was a good year. As in previous years, Hungary improved in all convergence criteria. The GDP grew by 2.9 percent. The budget deficit dipped to 2 percent of GDP, and the debt-to-GDP ratio shrank to 75.5 percent. When announcing the data on Monday at the opening of Parliament’s spring session, Prime Minister Orbán called on MPs to support an even stricter fiscal goal: a zero-deficit budget to continue to reduce the country’s debt. [Blog post by András Gyürk]

Before the Orbán Government took over in 2010, the debt-to-GDP ratio reached well above 80 percent, the annual budget deficit exceeded 3 percent, and GDP had shrunk year-on-year.

Around the same time the latest economic data were announced, Morgan Stanley London released its latest Vulnerability Scoring Indicator. During the period from the financial crisis in 2008 to 2015, Hungary’s economic vulnerability decreased more than any other country in the CEEMEA region. In 2008, according to the index, Hungary was the most vulnerable country in the region, “but its impressive external turnaround means it screens as much safer now.”

Numerous factors are fueling the Hungarian economic recovery. With more people back in the active labor force, and paying taxes, the unemployment rate has dropped from 11 percent in the spring of 2010 to 6.2 percent in the most recent figures. That’s the lowest percentage ever recorded (since 1992 when official employment data were first collected). Part of the improvement in employment is related to the government’s new “workfare” approach, offering public work instead of financial subsidies and successfully countering multigenerational unemployment, but the “real economy” plays a significant role also. “If there are jobs, we have everything,” said Prime Minister Orbán in his address to Parliament, but  “if there are no jobs, we have nothing.”

2015 was a record-breaking year for Hungary in both trade surplus and foreign direct investment. FDI created 13,000 jobs in 2015 alone, putting Hungary in second place in FDI per capita in the region, following the Czech Republic. The Hungarian Investment Promotion Agency has another 169 investment projects in the pipeline, investments that would create an additional 27 thousand work places. “In Hungary we had communism for 40 years,” the prime minister said. “Therefore, we didn’t have accumulation of capital, therefore we don’t have [domestic] capital, so we need foreign investors.”

Along with foreign investment, the trade surplus has also grown. It reached 8.1 billion EUR in 2015, which is the best data ever recorded for Hungary. That’s a 28.6 percent growth over the previous year’s 6.3 billion EUR surplus.

Morgan Stanley was not alone in its positive assessment. The IMF, in its recent report, underlines Hungary’s solid economic growth, rising employment and declining vulnerabilities in general. The OECD released an even more upbeat report about Hungary late last year.

Coface, a French credit insurance company recently upgraded Hungary’s credit rating to A4 from B, returning it to investment grade. Market analysts believe that the three big credit rating agencies – which are generally cautious – are also going to upgrade the country’s credit rating this year. That would be beating the average. According to one of the three, Fitch Ratings, for a country to be put back in the “recommended for investment category” after falling out due to poor performance takes an average of six years. On that timeline, Hungary would have to wait until 2018, but we’re optimistic the upgrade is coming this year.

Looking at the 2015 economic data, Hungary has improved on nearly all the indicators. From a near Greece-like crisis in 2008, Hungary’s economy has turned around. More work to be done, but the numbers so far are impressive.