With unemployment at record lows, Hungary’s economy on Europe’s leader board
Prime Minister Orbán’s economic program sets out a number of ambitious goals. It demands fiscal discipline to keep the budget deficit not only under the three-percent Maastricht threshold but low enough to reduce nominal state debt. It calls for GDP growth to increase from the current level between 2 and 3 percent to a more robust output above 3 percent and sets a longer term goal of five percent. And it aims to create jobs to bring the labor market to full employment.
Scan the map of the European Union, and you won’t find many governments these days with the stomach to hold similar economic ambitions. In today’s EU, fiscal discipline and GDP growth remain elusive for many and unemployment intractable. But based on the most recent economic indicators and trends, the Orbán Government’s economic policies, once dismissed as unorthodox, have helped lay a sound structural foundation that puts Hungary’s economy on the European leader board.
In early August, we saw GDP growth beat analysts’ expectations for the second quarter of 2016. With 2.6 percent growth, the Q2 GDP shows a healthy and balanced gain, with all sectors contributing to the increase. The trade surplus was at 5.3 billion EUR, about 1 billion EUR higher than 12 months ago. As we expect the GDP growth to accelerate even more in the second half of 2016, the government’s forecast of a 2.5 percent growth seems well within the realm of possibility for 2016.
Hungary’s economy has been growing since 2013, consistently beating the EU average. We had a long way to come, but with GDP growth reaching 3.7 percent in 2014, Hungarian GDP returned to its pre-crisis level. Growth of 2.9 percent in 2015 topped that. All that growth took place while the debt-to-GDP ratio shrunk from 81 percent before 2010 to 75.5 percent by the end of 2015.
The most recent data on the budget deficit at the end of July shows unprecedented discipline. The 464.8 billion HUF missing from the budget is the lowest in 15 years and is about half of last year’s figure (894.1 billion HUF). This, together with a shrinking debt-to-GDP ratio, indicates that Hungarian economic growth is not financed from debt, unlike in the pre-crisis period.
The unemployment rate has dipped below five percent for the first time since Hungary began tracking employment, according to data released August 30. That’s a marked contrast to what we’re seeing in much of the rest of Europe but also compared to Hungary’s joblessness rate in 2010, a record high of 11.8 percent. The policies inaugurated by the Orbán Government in 2010 have not only turned the corner, but by now have reached the other end of the scale.
We can’t take these achievements for granted. Hungary’s economy is still burdened with the effects of communist mismanagement. To achieve a budget surplus, we’ll need to see steady five percent growth and continuous increase in employment, but Minister of Economy Mihály Varga doesn’t appear to be backing off of these targets.
The government’s newly established economic cabinet – which consists of relevant ministries and is headed by Minister Varga – has already proposed a 50-point agenda to further fuel Hungary’s economic growth. Among its new ideas, we see a radical reduction in employment costs, to which employers have already signaled their support.
Over the past few years, Hungary has restored the basics of a functioning economy. We still have more work to do to bring down debt, stimulate growth and reduce unemployment, but these latest numbers show that all the major indicators are trending in the right direction.