Economic and Political Overview

flag Hungary Hungary: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

Resuming the trends observed in recent years, Hungary's GDP rebounded sharply after the softening of the COVID-19 pandemic. Nevertheless, the country’s economy contracted for four consecutive quarters from mid-2022 to mid-2023 due to high inflation, tighter fiscal and monetary policies and sluggish external demand. Despite resuming growth in Q3/2023, the IMF estimated a contraction of 0.3% of GDP for the year as a whole. Projected real GDP growth is expected to increase to 3.1% in 2024 and further rise to 3.3% in 2025. The consumption growth is anticipated to be sustained by the recovery of real income and a reduction in precautionary savings. While construction investment is forecasted to be limited due to fiscal consolidation and elevated interest rates, significant FDI in manufacturing is anticipated to stimulate machinery investment.


The public finances for 2023 have notably fallen short of the budgeted target, primarily due to a decrease in consumption tax revenues, with increased expenditure driven by inflation-related spending and higher interest payments. Therefore, the public budget deficit stood at 4.6% of GDP. Amid the positive trends in the macroeconomic landscape, the anticipation of reduced energy costs, planned decreases in capital expenditure, and the delayed recapitalization of the central bank, the projected deficit is expected to persist at 3.5% of GDP in 2024 and 2.6% in 2025 (IMF). In light of high inflation, the debt-to-GDP ratio decreased to 68.7% by the end of 2023 (from 73.3% one year earlier), still above the pre-pandemic level. However, consolidation is expected to decelerate afterwards due to ongoing high deficits and slower nominal GDP growth, with the debt ratio decelerating at a slower pace (65.7% of GDP in 2024 and 64.1% in 2025 as per the IMF). Inflation remained in double digits in 2023 (17.7%), but should gradually decrease in 2024 and 2025 (6.6% and 4.3%, respectively) due to base effects, lower commodity prices and weak consumer demand, albeit high wage growth is expected to keep service inflation persistently high.

Employment demonstrated resilience last year, with companies hesitant to reduce their workforce amid ongoing labour shortages. Unemployment stood at 3.9% in 2023 and is expected to remain relatively stable in the forecast horizon. The tight labour market is poised to support elevated nominal wage growth, with an additional boost anticipated from a projected double-digit increase in the minimum wage in 2024. Overall, GDP per capita in Hungary was estimated at USD 43,601 in 2023, still below the EU average (USD 56,970 – IMF).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 178.12212.61223.41240.12254.15
GDP (Constant Prices, Annual % Change) 4.6-0.92.23.32.8
GDP per Capita (USD) 18,38422,14723,31925,12826,662
General Government Balance (in % of GDP) -7.2-6.3-4.6-4.0-3.0
General Government Gross Debt (in % of GDP) 73.973.474.773.472.4
Inflation Rate (%) 14.617.13.73.52.9
Unemployment Rate (% of the Labour Force) 3.64.14.44.24.1
Current Account (billions USD) -14.650.56-0.41-0.66-0.79
Current Account (in % of GDP) -8.20.3-0.2-0.3-0.3

Source: IMF – World Economic Outlook Database, Latest data available.

Note : (E) Estimated data

 

Main Sectors of Industry

The agricultural sector, which used to be the dominant force in the Hungarian economy for many years, now represents 3.2% of the GDP and employs 4% of the working population (World Bank, latest data available). The country has an agricultural area of 5,278k ha, around 56.7% of its territory (FAO). Cereals, fruits, maize, vegetables and wine are the main crops. More specifically, major crops include wheat (1 million ha), corn (1 million ha), and oilseeds (1 million ha) - mostly sunflower and rapeseed (0.9 million ha). According to the first 2023 estimates from the Hungarian Statistical Office, the agricultural output surpassed HUF 4.3 trillion, marking a 6.5% increase from the previous year. This growth was driven by a 25% rise in production volume, while the overall sector's output price decreased by 15%. Crop production volume increased by 44%, while livestock production saw a marginal 0.5% decrease. The substantial growth in specific crops was influenced by a low base in the preceding year.

Industry accounts for 24.6% of the country's GDP and employs 31% of the working population. Hungarian industry is very open to foreign investment, with manufacturing almost consistently ranking top receiver of foreign direct investment. The automotive and electronics sectors are the two main industrial sectors, and the manufacturing sector alone accounts for 17% of the country’s GDP. The electronics industry is one of the largest industrial sectors in Hungary, accounting for one-fifth of total manufacturing production. According to the latest figures by the Hungarian Central Statistical Office, industrial output decreased by 4.8% in the first semester of 2023 compared to the same period one year earlier (with -3.4% and -26% recorded by the manufacturing and energy subsectors, respectively).

The services sector contributes 57.2% of GDP and employs almost 64% of the labour force. Trade, tourism and finance account for the largest share of activity and employment within the tertiary sector. In recent years the added value produced by the ICT sector increased by more than one-fifth, to USD 20 billion, with the digital economy currently making up more than 20% of Hungary's overall gross value added. The banking sector consists of 40 institutions: 21 commercial banks, 11 specialised credit institutions (mortgage banks, building societies, development and trade finance banks) and 8 foreign bank branches (European Banking Federation).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 4.4 31.4 64.2
Value Added (in % of GDP) 2.7 25.8 56.4
Value Added (Annual % Change) -30.9 5.0 7.0

Source: World Bank, Latest data available.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
67,2/100
World Rank:
55
Regional Rank:
31

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.99/10
World Rank:
33/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Katalin Novak (since 10 May 2022) - Fidesz
Prime Minister: Viktor Orban (since 29 May 2010) - Fidesz
Next Election Dates
Presidential: 2027
National Assembly: April 2026
Current Political Context
The right-wing Fidesz party and its leader Viktor Orban have been dominating the political scene in Hungary for the last 13 years. The election took place in April 2022 and saw a landslide victory for the Fidesz-KDNP party, which obtained 135 seats out of 199. The coalition United for Hungary secured a total of 57 seats, while 6 seats went to the nationalist party Our Homeland.
Katalin Novak – the former Minister for Family - from Fidesz was elected as the first female President in March 2022. Despite the challenging economic (rise in energy and food prices) and political (Russia-Ukraine war) situation, support for the Fidesz-KDNP party went back to levels seen before the elections campaign.
Relations with the European Commission remain tense in light of the “conditionality mechanism” which subjects disbursement to the rule of law in the respective country, causing disputes with the EU over the release of funds to Hungary. Furthermore, in December 2023 Prime Minister Viktor Orban vetoed a USD 54.5 billion European Union aid package for Ukraine.
Main Political Parties
Hungary is a multi-party democracy largely divided between the conservative right and opposition. The three main parties/coalitions at the latest election were:

- Fidesz-Hungarian Civic Alliance (Fidesz): centre-right, nationalist, socially conservative, most popular party across all legislative districts. It currently holds a majority in the National Assembly with 135 seats and has maintained control of the presidency since 2010. Furthermore, it has supported the election of every president since 2000
- United for Hungary: a big tent coalition formed by the following parties: Hungarian Socialist Party, Democratic Coalition, Movement for a Better Hungary (Jobbik), LMP – Hungary's Green Party, Dialogue for Hungary and the Momentum Movement
- Our Homeland Movement (MHM): far-right, nationalist.

Other parties include:
- Christian Democratic People’s Party (KDNP): right-wing, propagates national conservatism; acts as a sister organisation of Fidesz
- Jobbik: initially far-right and anti-EU, the party has switched to more mainstream right political line
- Politics Can Be Different (LMP): centre, green-liberal, champions protection of the environment, supports sustainable development and aims to work against corruption
- National Self-Government of Germans in Hungary (MNOÖ): German-Hungarian interests
- Momentum Movement: centrist, liberal.
Type of State
Parliamentary republic
Executive Power
The President is the Chief of State and the Prime Minister is the Head of Government. The President is elected by the National Assembly for a five-year term (eligible for a second term). The Prime Minister is elected by the National Assembly on the recommendation of the President.
The Cabinet is a Council of Ministers elected by the National Assembly on the recommendation of the President; other ministers are proposed by the Prime Minister and appointed and relieved of their duties via the presidential elections.
Legislative Power
The Hungarian Parliament is unicameral. The National Assembly is composed of 199 members elected every four years and can either initiate new legislation or approve those introduced by the Government. Out of the total, 106 members are directly elected in single-member constituencies by simple majority vote and 93 members are directly elected in a single nationwide constituency by party-list proportional representation vote.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
92/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
3/7
Civil Liberties:
3/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
The summary of the EU’s economic response to the COVID-19 pandemic is available on the website of the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) in Hungary, please consult the country's dedicated section in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: April 2024