June 2004
  The newsletter for buyers and suppliers of castings and forgings
     
 

Hungarian Economy Overview

With special thanks to Gabriella Bicskei -
Association of Hungarian Foundries

See also >
Hungarian foundry report

 
     
 

Introduction

Hungary has made the transition from a centrally planned to a market economy, with a per capita income one-half that of the Big Four European nations. Hungary continues to demonstrate strong economic growth and to work toward accession to the European Union in May 2004. The private sector accounts for over 80% of GDP. Foreign ownership of and investment in Hungarian firms are widespread, with cumulative foreign direct investment totaling more than $23 billion since 1989. Hungarian sovereign debt was upgraded in 2000 to the second-highest rating among all the Central European transition economies. Inflation has declined substantially, from 14% in 1998 to 4.7% in 2003; unemployment has persisted around the 6% level. Germany is by far Hungary's largest economic partner. Short-term issues include the reduction of the public sector deficit to 3% in 2004 and avoiding unjustified increases in wages.

Economic situation

In 2003 the Hungarian economy achieved a growth rate of 2.9%. Although this was slightly behind that of the previous year, the growth rate gradually started to pick up as of second quarter and in the last quarter it already reached 3.5%. The interim acceleration took place parallel with the European Union's recovery, thus proving the Hungarian economy's close correlation with the Western-European prosperity cycle. Nevertheless, the main driving force of growth throughout last year - similar to the previous year's situation - was consumption: according to the detailed figures regarding the first three quarters, the consumption expenditure of households increased in real terms by 8.8%. Last year's 12.3% increase in the capital investment in machine industry and the mid-year upturn of the processing industry's investment activity played a key role - through improved productivity and the expansion of export capacity - in achieving a healthier growth structure.

Following the unfavourable figures experienced in the first 6 months, working capital inflow accelerated in the second half of the year, and thus direct foreign capital investments in Hungary - in the form of share and ownership holdings - exceeded previous year's level and reached almost EUR 1.5 billion. The regional expansion of large Hungarian companies has continued, which resulted in a record level of working capital export in 2003, reaching EUR 1.4 billion.

General government deficit (net of local governments) in 2003 reached HUF 1 054 billion. Although this represented a considerable decrease compared to last year's record deficit, but - even despite the cost-cutting measures implemented during the year - it still exceeded the budgetary estimate specified in the Public Finances Act by more than 25%. Last year's deficit in payment terms reached 5.6% of GDP.

The external balance of the economy has deteriorated last year. The annual deficit of foreign trade product turnover was close to EUR 4.5 billion: in addition to the drop in exports seen in the first six months - mainly due to some large exporters' withdrawal during last year - the dynamic expansion of consumer import, and subsequently in the second half-year that of imports increasingly related to investments played a decisive role in the deterioration of the balance. Thanks to the recovery of exports experienced as of mid-year, the foreign trade balance already showed an improvement in Q4.

Annual average consumer inflation index in 2003 dropped to 4.7%, however the disinflation trend which has been present since mid-2001 came to a halt in the second half of last year, and the 12-months' consumer price index reached 5.7% by the year-end.

Last year gross industrial output increased by 6.4%, which - compared to the previous year - represents a significant expansion. The production dynamics trends during the year show a spectacular industrial growth: while in the first half-year growth rate was still around 4%, the same index already reached two-digit numbers in the last months of the year. The industrial boom is attributable to the over 10% increase in export sales, while domestic sales produced a mere 1% growth. Following previous years' unfavourable tendencies the last quarter of 2003 brought a considerable development in terms of competitiveness. Due to the spectacular growth in industrial outputs, the improvement of industrial productivity exceeded the sector's gross nominal wage increase, which manifests itself in the improvement of the specific labour costs index. The almost 4.5% drop in unit labour costs expressed in Euro signals that convergence of wages may also take place parallel with regaining our competitive edge.

Unemployment rate in 2003 dropped from the Q1's 6.4% to 5.5% by the end of the year, which is the lowest level ever, moreover, this decrease was accompanied by a considerable growth in working population. It is a positive development in the labour market that the primary source of expanding employment is the increased economic activity of working age population: the return in part of the previously inactive population to the labour market improves the economy's growth potential through expanded workforce reserves.

Gross average wages continued to increase last year too at a two-digit pace (the annual average was 12%), which was in part due to the continuing rapid salary increase in the public sector, attributable to the prolonged impact of the pay-rise effected primarily in September 2002. The wage dynamics in the competitive sector showed a significant slow-down compared to the previous year, but salary increases still exceeded the level agreed upon during the reconciliation process. In 2003 net real wages at national economy level increased by 9.7%.

Statistics (The world Fact Book)


GDP: purchasing power parity - $134 billion (2002 est.)

GDP - real growth rate: 3.3% (2002 est.)

GDP - per capita: purchasing power parity - $13,300 (2002 est.)

GDP - composition by sector:
agriculture: 4.1%
industry: 33.8%
services: 62.1% (2000 est.)

Inflation rate (consumer prices): 5.3% (2002 est.)

Labor force: 4.2 million (1997)

Labor force - by occupation: services 65%, industry 27%, agriculture 8% (1996)

Unemployment rate: 5.8% (2002 est.)

Budget: revenues: $13 billion

expenditures: $14.4 billion, including capital expenditures of $NA (2000 est.)

Industries:
mining, metallurgy, construction materials, processed foods, textiles, chemicals (especially pharmaceuticals), motor vehicles

Industrial production growth rate: 3.1% (2002 est.)

Electricity - production: 34.39 billion kWh (2001)

Electricity - production by source:
fossil fuel: 60.1%
hydro: 0.5%
other: 0.3% (2001)
nuclear: 39%

Agriculture - products:
wheat, corn, sunflower seed, potatoes, sugar beets; pigs, cattle, poultry, dairy products

Exports: $31.4 billion f.o.b. (2002 est.)

Exports - commodities: machinery and equipment 57.6%, other manufactures 31.0%, food products 7.5%, raw materials 1.9%, fuels and electricity 1.9% (2001)

Exports - partners:
Germany 34.3%, Austria 8.5%, Italy 5.5%, France 5.4%, US 4.9%, UK 4.5% (2002)

Imports: $33.9 billion f.o.b. (2002 est.)

Imports - commodities:
machinery and equipment 51.6%, other manufactures 35.3%, fuels and electricity 8.2%, food products 2.9%, raw materials 2.0% (2001)

Imports - partners:
Germany 25.3%, Austria 7.7%, Italy 7.5%, Russia 6%, China 5%, France 5% (2002)

Debt - external: $31.5 billion (2002 est.)

Economic aid - recipient: ODA $250 million (2000)

Currency: forint (HUF)



sources :

Gabriella Bicskei
Association of Hungarian Foundries

The World Factbook

 

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