According to preliminary GDP growth data from the Hungarian Central Statistical Office, the Hungarian economy grew by 4.4 percent in the fourth quarter of last year, and by 4 percent in the entire year of 2017. The data has not shown such growth in 12 years, Minister Varga said.
In today’s Europe, where sluggish growth seems to be the new normal, these numbers would be a success story in any country. But the growth is particularly noteworthy in Hungary’s case. In 2010, when the Orbán Government took office, the country had been teetering on the edge of default. Household debt had reached historic highs as families struggled under the weight of foreign currency-denominated loans and the annual budget deficit would soon hit 5 percent. Today, we see a remarkably different picture: foreign currency-denominated loans have been nearly eliminated, consumption is rising and interest rates have fallen dramatically. The government deficit was 1.9 percent of GDP in 2016 (and has remained well below the 3 percent EU threshold since 2012) and the debt-to-GDP ratio is falling.
Approximately one percent of the 4 percent growth in 2017 can be attributed to the economic stimulus effect of the 6-year wage and tax agreement struck in November 2016, said Minister Varga. Thanks to the 12.8 percent wage increase, and the fact that we saw seventy thousand more find employment in that period, employees have received an additional 1.1 trillion HUF (3.5 billion EUR) in salary and a boost to their standard of living, said Varga.
More fundamentally, as we’ve noted many times, we’re seeing this steady growth alongside declining debt and falling deficits, meaning the growth is fueled by real output, not loans. “Hungary’s strong external profile and track record of fiscal restraint support the sovereign ratings,” according to a Standard and Poor’s report issued last Friday, underlining one of the main reasons behind reaffirming Hungary’s credit rating.
Last year, nearly all economic sectors contributed positively to growth, with the exception of agriculture, which was affected by adverse weather. International comparisons show that Hungary’s growth is beating the performance of the European Union. According to Eurostat’s flash estimate, in the last quarter of 2017, the Union grew an average of 2.6 percent. Among the Visegrád Four countries, Hungary’s output appeared to be the best in the last quarter, based on a forecast by the European Commission. Minister Varga added that the government forecasts a 4.3 percent growth in 2018, boosted in part by the stimulus effect of the wage and tax agreement and the reduction of corporate taxes to 9 percent. Also, growth in the housing market is expected to continue.
Once upon a time, they called the Orbán Government’s economic policies “unorthodox.” With our unemployment at a record low of 3.8 percent and GDP growth now exceeding 4 percent, those critics have gone quiet.