Hungary - Overview
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In 2012, the Hungarian economy sunk deeper into recession. The prime minister Viktor Orban's priority was to exit the European excessive deficit procedure, to which the country has been subject since the beginning of 2012. The 2013 budget included the introduction of new taxation (on financial transactions and telecommunication services), broadening the scope of tax on energy providers, introduction of a flat-rate tax on insurance plans and measures to improve tax collection. A reduction of state subsidies for pharmaceutical products and public companies is also to be implemented.
In May 2013, the country exited the European excessive deficit procedure which had been implemented against its will at the beginning of 2012. The Hungarian foreign trade has benefited from the weak forit and the dynamic German economy. The government has been pursuing an unorthodox policy of taxing multinational companies in order to fill up the state coffers. It has also simplified access to credit through a central bank's policy of reducing official interest rates. The state deficit should remain under 3% of teh GDP despite the elections. In addition to fiscal consolidation measures, the government has tried to stimulate employment implementing a reform of the labour market. Excessive household debt is a source of tension with the banking sector.
Although the unemployment rate has been falling (around 10%), the exodus of the most highly skilled young people remains a severe issue.
The industrial sector contributes to almost one-third of the country’s GDP and is very open to foreign investors. Automobile and electronics sectors are the two main sectors, given that they account for 30% of the country's exports and generate 15% of the GDP.
The services sector contributes nearly to two-thirds of the GDP and employs over 65% of the workforce. It concentrates the bulk of FDI, especially in the fields of telecommunications, retail and finance.
Foreign trade overview
Hungary has traditionally maintained a negative trade balance. However, as an effect of the global recession, the volume of trade has decreased and the trade balance has became positive, due to imports falling more quickly than exports. In 2013, foreign trade benefited from the weak forint and the dynamic German economy. The trade surplus increased under the effect of exports rising more quickly (9.5%) than imports (6.9%). This trend should continue in 2014.
The European Union is by far Hungary's biggest economic partner (Germany and Russia in the lead), followed by China.
During the recent years, Hungary benefitted from a change in the direction of the FDIs, which moved from low-value textile and food industry sectors to the production of luxury vehicles, renewable energy systems, luxury tourism and information technologies.
The country’s strengths include: a tax system favorable to investment and its geographic location as a bridgehead between Eastern and Western Europe.