May 31, 2018 - Zoltán Kovács

Yet more reasons to be bullish on Hungary’s economy

Every time I see the latest numbers from Hungary’s economic performance, I think of all those critics who denounced so vociferously the policies of the Orbán Government of 2010-2014.

We were condemned for rejecting austerity and showing IMF the door, for introducing flat taxes on income and business profits, for our special sectoral taxes on banks and other multinationals, for our measures to eradicate foreign currency-denominated debt, for imposing higher VAT to tax consumption, for reducing utility prices and more. I said it before. I’ll say it again: Who’s calling us unorthodox now?

A prominent economic research institute in Budapest just raised its forecast for Hungary’s GDP growth in 2018 from 3.8 to 4 percent. GKI cited faster-than-expected growth in wages and consumption and predicted that industrial output would climb 5 percent, the construction industry would expand by 10 percent, investment by 9 percent and retail sales by 6 percent.

GKI’s optimism follows similar upward revisions from the EBRD and IMF, both of which boosted forecasts by .4 percent and now project 3.8 percent GDP growth in 2018.

They have good reason. Earlier this month, Finance Minister Mihály Varga reported that year-on-year growth figures from the first quarter of 2018 hit a robust 4.7 percent.

At the dawn of the fourth Orbán Government, it’s eight years since the prime minister’s economic policies pulled Hungary’s economy from the brink of bankruptcy, put the fiscal house back in order, paid off the IMF and set the country again on a path of steady growth. Back in 2010, when the Orbán Government took power, the prime minister promised to transform Hungary, with unemployment then at nearly 12 percent, into a workfare society. Pledging to create one million new jobs over the next decade, the government set a goal to reduce the welfare rolls, give every Hungarian that wants to work a chance to work, and also make it worthwhile to go back to work by lowering taxes on labor and increasing real wages.

It’s working. As Finance Minister Mihály Varga said recently, the number of people working has risen by more than 740 thousand and unemployment remains at its record low of 3.9 percent. That puts Hungary’s jobless rate among the best in the EU, bettering even Germany’s unemployment rate of 5.3 percent. The numbers of Hungarians working in community service and those working abroad have also decreased.

The economic expansion has covered a broad base and come without additional debt. Almost every sector of the economy has contributed to overall growth. Tourism has performed especially well; we’ve seen double-digit increases in the number of nights stayed in every accommodation type and that increase touched every region in Hungary.

Growing investment also boosted economic output. Hungary, according to Site Selection magazine in the US, now ranks eighth among the world’s most attractive investment destinations. That’s due in part to the fact that we have the lowest corporate tax rate in the EU at 9 percent.

Now that the groundwork for macro-economic stability and fiscal prudence has been done, said Minister Varga, the re-igniting of economic growth and boosting employment become even more important strategic objectives. Supporting growth, the new government plans further tax cuts for both individuals and businesses, he added.

I remember well how the sages in the international press scoffed at the Orbán Government’s economic policies as “unorthodox.” As our unemployment rate drops to record lows and GDP growth continues apace, our work-based approach, changing the paradigm of the welfare society, is becoming the new model.