Invest in Hungary

The lehel Market in Budapest

Hungary is one of the most advanced countries among the new EU members. It attracts millions of dollars in fresh foreign direct investment each year, because of substantial incentives such as tax holidays for up to five years, skilled workforce, and subsidies.

Hungary has successfully attracted solid inflows of foreign  investment.  Especially American investors are being encouraged to make new investments in Hungary. All the investors recognize that Hungary is a natural gateway to the Eastern Europe, a fast -growing combined market of 600 million consumers. Hungary's appeal includes its skilled and highly productive labor force, transparent investment code, attractive corporate tax rates, and other distinguishing advantages.

High Productivity

The skill and productivity of the Hungarian labor force is key to the country's success in attracting investors. Productivity is substantially higher than in Poland, Slovenia, the Czech Republic and Slovakia. This capability positions Hungary as the sixth-best country in the world to develop high-tech industries.

Upper middle-income country

Hungary, the upper middle-income country, has successfully built up a robust private export sector, and gained substantial economic growth with low unemployment. In its drive to join the European Union (EU), Hungary concentrated on completing reforms. The gap with the rest of the EU has narrowed, and additional advances are expected.

Inflation declined

The country’s economic growth has strengthened and has become more balanced, and inflation has started to decline, but the fiscal and external positions are a source of concern. The budget deficit is around 8 percent of GDP, caused by public sector spending and tax reductions. The current state of public finances is undermining economic stability and growth prospects.

Stronger exchange

In 2005, inflation slowed to 3.5 percent , thanks to smaller increases in indirect taxes and prices of food and regulated items, together with stronger exchange rate.  Against the background of falling inflation, the central bank cut its policy rates by 350 basis points during the course of 2005. Current trends in headline inflation have been dominated by the disinflation effects of the cut in the top value added tax (VAT) rate from January. As a result, inflation declined to 2 percent in the first quarter of 2006 year-on-year.

Rebalancing living standards

Starting business in Hungary Macro economics data for Hungary

The economic policy priorities of Hungary have shifted from structural reforms to rebalancing living standards and upgrading public infrastructure since 2000. Public sector investments, wages, and pensions have increased. The reforms resulted in an increase in the general government deficit to over 8.5 percent of GDP in 2002. Output growth was driven mainly by private consumption. Despite some fiscal tightening in 2003 and a restrictive monetary policy, growth recovered from mid Recent economic performance.

Consumption increased

The real GDP slowed down slightly to 4.1 percent in 2005. The basic reason of GDP growth was the strong performance in net exports and investment. Consumption increased by 2.3 percent in the last year, substantially below the pace of GDP growth. Due to intensified highway building, the expansion of construction activities surpassed growth in all other segments of the economy. Expanding external and domestic demand kept the GDP growth rate slightly above 4.5 percent in the first quarter of 2006.

Unemployment rate

In the first quarter of 2006, Hungary’s unemployment rate hit a seven-year high of 7.2 percent compared to the 6.1 percent registered in 2004. Fiscal policy has slipped further, and the credibility of a new austerity program is fragile. The general government deficit reached 7.5 percent of GDP in 2005, substantially overshooting the initial 5 percent target.  The deficit is expected to widen further to over 10 percent of GDP (including cost of pension reform) in 2006.

Fiscal consolidation program

A fiscal consolidation program proposed by the government in June 2006 contains exclusively short term measures. In the absence of long-term structural reforms, the burden on the budget appears unsustainable. The resulting lack of investor confidence is exerting major downward pressure on the Hungarian currency.

International relations

The country has a strong and constructive relations with European Union,United States and neighboring countries. There are about 2.4 million ethnic Hungarians in neighboring countries, especially those like Romania, Serbia and Slovakia. The  government has been trying to support Hungarian minority who lives in the neighborhood countries.

Corruption

Hungary is one of the less corrupt countries within the eastern Europe, and was ranked 42nd out of 145 countries in the 2004 Corruption Perceptions Index by Transparency International - after 31st-ranked Estonia and Slovenia. Nevertheless, there is widespread perception in the country of corruption in the executive and legislative branches. Anecdotal evidence suggests significant corruption in public procurement (especially of military articles), party financing and in internal financial control.

Homogenous population

Hungary’s current population is 10,198,315. The population has been falling since 1981, when the death rate began to exceed the birth rate. The country’s population is homogenous, compared with most other countries in the region. Ethnic minorities account for about 8% of the population.