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May 05, 2016 - Zoltán Kovács

Forbes: Hungarian reforms are working

A recent installment of the Global Investment Guide, a series published by Forbes, writes on the recovery of the Hungarian economy, noting that Hungary has reported even better than expected results in stimulating economic growth, reducing unemployment and cutting the GDP-to-debt ratio for the first quarter of 2016. Thanks to savvy reforms that work, Hungary’s bonds, equity markets and currency have recovered and are healthy again.

Denounced as unorthodox and unfriendly, Prime Minister Viktor Orbán’s economic reforms have produced what for some is a remarkable transformation. Even his loudest detractors cannot help noticing Hungary’s economy among the leaders of the pack for growth in Europe in 2016. Shadowing the momentum of Germany’s economic might, many financial analysts anticipate Hungary’s economy warrants an upgrade to investment grade status from rating agencies Fitch and Moody’s. Why?

In her global guide to the 25 economies to watch for global investors, Sara Zervos singles out Hungary for its success, a turnaround and a resumption of stability, growth and jobs. Record low interest rates and “[a]n absence of inflation in the European region combined with low oil and food prices has brought Hungary’s inflation close to zero and spurred the central bank to cut interest rates yet again.”

Just last week, Hungary announced that it had completed repayment of a joint International Monetary Fund and European Commission bailout of over 6 billion EUR necessary in 2008 in order to restore the health of a budget sabotaged by the previous Socialist-led government’s economic mismanagement. Fortunately, Hungary is not Greece, and this Forbes contributor believes Hungary is “poised to keep growth decently high (2 percent or more) for the coming year.” Compare that performance to Eurozone forecasts that show France and Italy at the back of the pack, expected to bring little or negative growth.

Hungary’s recovery has not been without hard work. When the Orbán Government took office in 2010, it undertook wide-reaching measures to restructure the debt of Hungary’s nearly bankrupt homeowners and reform its taxation and banking systems. Since the financial crisis, Hungary’s ruling government has reduced the budget deficit, reduced business taxes, put families at the center of its economic policy, lowered public utility costs and created incentives for the long-term unemployed and disadvantaged to return to work. Hungary has emerged from the economic fallout with a strict policy to reduce national debt denominated in foreign currency and, according to Forbes, “has entered a coveted ‘twin-surplus’ situation on its current account and (primary) fiscal accounts – a far cry from its situation in the run-up to 2008.”

After clamping down on unfair banking practices, Prime Minister Orbán foresees banks also benefitting from tax cuts this year. Financial institutions are not alone in savoring the results from a tough policy that sought to restore Hungarian competitiveness and investor confidence: Hungary’s equity market has rallied since January 2015, up 70 percent, led by Hungarian blue-chip stocks, OTP Bank, Richter Gedeon (pharmaceuticals) and MOL (energy).

“Fitch’s move to bring Hungary back to investment grade status is expected by May 2016, and likely foreshadows another agency (Moody’s) similar move later this year. If Hungary achieves two investment grade ratings, it will likely attract a significant amount of new capital inflows,” writes Zervos.

Optimistic appraisals come as little surprise, frankly. These positive economic trends in Hungary have taking shape for some time. But it’s refreshing – after all that badgering a few years ago about the Orbán Government’s “unorthodox” measures – to see a growing number of analysts singing the praises of Hungary’s economic recovery.