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

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Contrasting with the trends observed in recent years, Hungary's GDP contracted sharply following the outbreak of the COVID-19 pandemic, as the backbone of growth - rising household income and exports - was severely impacted. Nevertheless, the economy was dynamic in 2021 despite headwinds from global supply chain disruptions, with an estimated growth of 7.6% (IMF). Underpinned by continuing fiscal stimulus measures and household consumption, economic growth is set to remain strong at 5.1% in 2022, before moderating to 3.8% in 2023 (IMF forecast).

Public finances have also been affected by the pandemic and the measures taken to contain its economic effects – including a one-time income tax refund to families with children, a subsidised loan programme for SMEs, an income tax cut for workers under age 25, the re-introduction of the 13th monthly pension and administrative wage increases – with an estimated budget deficit of 6.9% in 2021. As most measures fade out, the deficit is expected to decrease to 5.3% this year and 3.2% in 2023. Likewise, the debt-to-GDP ratio should resume its downward trend over the forecast period after reaching 76.6% in 2021. Public investment in 2022 will be partly financed by rising EU funds, which are also expected to provide a boost to investment. Rising commodity prices and wage pressures contribute to persistently high inflation: regulated prices for residential energy contributed to shield households from commodity price increases; however, companies are expected to pass their higher energy and wage costs on to consumers, fuelling non-energy inflation. Overall, the rate was estimated at 4.5% in 2021 by the IMF and it is forecast at 3.6% in 2022 and 3.3% in 2023.

Employment reached its pre-pandemic level in the summer of 2021 and job creation is set to continue as the economy grows. The rate was estimated at 4.1% in 2021 (from a pre-COVID level of 3.3%); as the IMF expects unemployment to stabilize around 3.8% over the forecast period. Meanwhile, wage growth is set to remain robust amid emerging signs of labour shortages, following the approval of a 20% minimum wage hike and sizeable salary increases in the public sector.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 163.49155.01e180.96198.99216.44
GDP (Constant Prices, Annual % Change) 4.6-5.0e7.65.13.8
GDP per Capita (USD) 16,729e15,866e18,52820,38022,174
General Government Balance (in % of GDP) -3.4-7.3e-6.9-5.3-3.2
General Government Gross Debt (in % of GDP) 65.580.4e76.675.673.1
Inflation Rate (%) 3.43.3e4.53.63.3
Unemployment Rate (% of the Labour Force) 3.34.1e4.13.83.8
Current Account (billions USD) -0.74-0.15e1.091.753.27
Current Account (in % of GDP) -0.5-0.1e0.60.91.5

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

 

Main Sectors of Industry

The agricultural sector, which used to be the dominant force in the country's economy for many years, now represents 3.4% of GDP and employs 4.7% of the working population (World Bank, latest data available). The country has arable land of 4,145k ha, around 47.4% of its territory. Cereals, fruits, maize, vegetables and wine are the main crops.

Industry accounts for 24.5% of the country's GDP and employs 32% 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. The manufacturing sector alone accounts for 17.5% 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.

The services sector contributes 56.6% of GDP and employs almost 63.2% 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.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 4.7 32.1 63.2
Value Added (in % of GDP) 3.5 25.2 55.8
Value Added (Annual % Change) -6.8 -5.6 -4.8

Source: World Bank, Latest available data.

 

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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: Janos Ader (since 10 May 2012; re-elected for a second five-year term in 2017) - Fidesz
Prime Minister: Viktor Orban (since 29 May 2010) - Fidesz
Next Election Dates
Presidential: 2022
National Assembly: April 2022
Current Political Context
The right-wing Fidesz party and its leader Viktor Orban have been dominating the political scene in Hungary for the last 12 years. The stance of the party has always been anti-European, and in 2021 Fidesz decided to leave the European People's Party group. Meanwhile, Conservative politician Péter Márki-Zay won the race to become the Hungarian opposition’s joint candidate for prime minister, defeating Klára Dobrev from the left-liberal Democratic Coalition. Márki-Zay will lead an anti-government alliance spanning opposition parties on the right, centre, and left.
Main Political Parties
Hungary is a multi-party democracy largely divided between the conservative right and opposition, Unity Coalition. Primary parties:

- Fidesz-Hungarian Civic Alliance (Fidesz): centre-right, nationalist, socially conservative, most popular party across all legislative districts
- 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

Unity Coalition is composed by:
- Hungarian Socialist Party (MSZP): centre-left, largest opposition party, favours a free market
- Democratic Coalition (DK): centre-left (too small to form parliamentary group)
- Together-Dialogue for Hungary (E-PM): centre-left, Hungarian green liberal political party (too small to form parliamentary group)
- Hungarian Liberal Party (too small to form parliamentary group).

Other minor parties are:
- National Self-Government of Germans in Hungary (MNOÖ): German-Hungarian interests
- Momentum Movement: centrist, liberal

Type of State
Parliamentary democracy
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.
 

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

Source: World Press Freedom Index, Reporters Without Borders

 

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

COVID-19 epidemic evolution

To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Hungary, please visit the official portal Koronavirus.gov.hu (in Hungarian). For regular updates on the situation, consult the official website About Hungary.
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.

Sanitary measures

To find out about the latest public health situation in Hungary and the current sanitary measures in vigour, please consult the dedicated page on the government platform Koronavirus.gov.hu (in Hungarian), as well as the website About Hungary. An updated overview in English is available on the website of the US Embassy in Hungary.

Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

For the up-to-date information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the website of Ministry of Foreign Affairs and Trade (in Hungarian).
The “Guidelines for border management measures to protect health and ensure the availability of goods and essential services” issued by the European Commission can be consulted
here.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Hungary on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

To know about the economic measures taken by the Hungarian government to address the impact of the COVID-19 pandemic on the national economy, please visit the dedicated page on the official governmental portal Koronavirus.gov.hu (in Hungarian). Information on the tax administration measures in the course of COVID-19 pandemic are available on the website of the National Tax and Customs Administration.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the websites of the
European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Hungarian government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Hungary in the
IMF’s Policy Tracker platform.

Support plan for businesses

For the information on the local business support scheme and taxation measures established by the Hungarian government to help businesses to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the website of the National Tax and Customs Administration. Further information can be sourced on the website of the European Commission.
For a general overview of international SME support policy responses to the COVID-19 outbreak 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.

Support plan for exporters

For the up-to-date information on possible support plans for exporters in Hungary, please consult the website of the state-owned Hungarian Export-Import Bank (EXIM). Furthermore, the government of Hungary launched a new export funding and investment promotion program.
The European Commission adopted a Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, which enables short-term export credit insurance to be provided by the State where needed.

 

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Latest Update: May 2022