Feb 22, 2016 - Zoltán Kovács

From Loan-Fueled Growth to Real Growth — Hungary’s Stabilizing Economy

The latest economic data is out. Hungary’s GDP grew in 2015 by 2.9 percent, beating the forecasts, and other preliminary data shows the debt-to-GDP ratio shrinking to 75.5%. A shrinking debt along side GDP growth indicates that this economy is growing organically, not from financing. In fact, last year was encouraging on a number of economic fronts.

“2015 was a year of breaking records,” said Minister of Foreign Affairs and Trade Péter Szijjarto recently while announcing the latest numbers on Hungary’s trade balance. The trade surplus reached 8.1 billion EUR in 2015, which is the best data ever recorded for Hungary, a 28.6 percent growth over the previous year’s 6.3 billion EUR surplus.

It wasn’t the only record Hungary broke in 2015. Hungarian exports are up but so is FDI. The Hungarian Investment Promotion Agency (HIPA) closed 67 new deals creating almost 13 thousand new jobs in 2015 alone. That puts Hungary in the second spot for FDI per capita in the region, following the Czech Republic.

Minister Szijjarto also announced that HIPA has another 169 investment projects in the works, investments worth some 4.6 billion EUR that would create an additional 27 thousand work places.

Hungary’s unemployment rate reached its lowest level since official statistics on jobs have been recorded. From September to November 2015, according to data released in January, the jobless rate dipped to 6.2 percent.

As if that weren’t enough, we’ve had other cause for celebration in recent weeks: the last of the foreign currency-denominated loans are being phased out. Previously, it was the housing loans, and now it’s the car and personal loans. Between 2002 and 2010, inundating companies, local governments, state bodies and private individuals with seemingly cheap, but extremely risky, FX loans marked an era of financial carelessness. It brought Hungary to the brink of a Greece-like crisis in 2008–2009. Getting rid of these loans — households freeing themselves of what was becoming unserviceable debt — has become one of the great success stories in Hungary’s recovery from the economic crisis.

All of these indicators paint a picture of a Hungarian economy finally stabilizing on its own two feet. In the first decade of the 21st century, Hungary’s economic growth was driven by loans, which left the economy precariously exposed to the 2008 global crisis. As a result, Hungary averted bankruptcy under the former, Socialist-led government by taking an IMF emergency bailout. But today, GDP growth comes from a growing trade surplus and higher FDI. That indicates a fundamental turnaround in the structure of the Hungarian economy, which makes the growth structurally sustainable. No wonder that these days, more people are betting on Hungary.