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The Hungarian economy was on a much weaker growth path global financial crisis of 2007-08. It saw a decline in gross domestic product (GDP) that amounted to -6.7 percent in 2009 followed by two years of slight growth of 1.2 percent in 2010 and 1.7 percent in 2011. This trend continued until 2012, when the Hungarian economy again took on the shrinking trend at -1.4 percent of GDP. Then the GDP rebounded to 1.2 percent in 2013, before reaching a 7-year high of 3.6 percent in 2014.
The Hungarian government is pursuing two important goals in recent years: the creation of a million new jobs during the 10 years and the transformation of the legal framework in the country in order to make Hungary "the most competitive economy in Europe".
In June 2013, Hungary was chastised officially by the European Parliament for the first time since its accession to the EU due to excessive budget deficit and rising government debt. In 2014, the government debt stood at 79 percent, 19 percentage points above the threshold in the Maastricht Agreement. Additionally, the Hungarian government’s aggressive moves against judiciary and media were also rebuked. Hungary wasn’t openly receptive to this criticism, so the relations had been cold with the EU since then. Furthermore, Hungary’s extreme reluctance to take EU-sanctioned refugees in October, 2015 further strained the ties with the economic bloc. So much so that Hungary is facing a possible expulsion from the Union.
As a result of rising debt, the Hungarian economy is seeing increased taxation. In 2010, the Orbán government introduced a banking tax and a special tax for the fields of energy, telecommunications and retail. In January 2012, the VAT was raised to 27 percent. As a replacement for the 2012 expiring special taxes on telephone calls, Internet connections and all financial transactions, the energy tax was increased from 8 to 16 percent. Further at the beginning of 2013, the so-called "cable tax" was introduced. In 2014 the government introduced an advertising control in which advertising revenue beyond the 100 million Hungarian forints mark is taxed at 5.3 percent.
Despite the prevalent economic crisis Hungary’s exports continue with an upward trend. In 2011, the Hungarian exports were around 79.9 billion euros. In 2014 this number has increased to 84.5 billion euros. More than three quarters of Hungarian exports go to the EU, of which a quarter go to Germany. Thus, Germany is by far the most important economic partner of Hungary. Major exports of Hungary include chemicals, machinery and transport equipment, textiles, agriculture goods and wine.
The inflation target of the Hungarian National Bank (MNB) is less than 3 percent. Inflation in 2012 was, however, standing at 5.7 percent. However, positive macroeconomic measures ensured that the figure came down to a mere -0.2 percent in 2014. For instance, since August 2012, the MNB has lowered its key interest rate in several steps from 7 percent to 1.35 percent to stimulate economic growth.
The unemployment rate in 2010 was 11.2 percent, in 2011, 10.9 percentand 2012 at 10.7 percent. According to the Hungarian Statistical Office, the unemployment rate reached 10.2 percent in 2013, before falling to 7.7 percent in December, 2014. It continued to fall in 201, reaching 6.2 percent in July, 2015.
Why invest in Hungary?
- Hungary’s central location allows for easy logistics and access to a 250 million strong market within a 1000 kilometre radius.
- Hungary has excellent transport infrastructure and a plethora of industrial sites. Both of these factors allow for a viable setting-up of a business.
- Though relatively heavily taxed, Hungarian government does off tax incentives to investments meeting certain criteria.
- The workforce is adequately available with good productivity.