PM Orbán: Hungary achieved a rapid and strong recovery from the crisis, record GDP growth

The new economic system created by the government has weathered the crisis, thanks to a diverse and open economy, Prime Minister Viktor Orbán said at the Year Opening Event of the Hungarian Chamber of Commerce and Industry.

In his address, the prime minister stressed that after 2010, fundamental changes were initiated in the economy, and the economy Hungarians are living in today is not the same as that in 2010. What’s at stake in the upcoming elections is whether “we go back to the old way,” the PM said. “All the money we have made available to the people has been linked to work,” he continued, adding that they want people to have their own homes and their own savings since respect for private property is one of the philosophical underpinnings of their policies.

The crisis brought about by the pandemic was a major stress test, and “the economic system we built after 2010 was able to withstand the pressure,” PM Orbán said, underlining that the recovery was swift and strong. Hungary’s crisis management did not upset the balance of the budget, he said, with fiscal and monetary packages exceeding 20–25 percent of GDP. Meanwhile, the labor market has remained stable with record high employment, he added.

The reason why Hungary’s crisis management was so successful is that “we were hit when we were in good shape,” he explained. The prime minister cited the diversity and openness of the Hungarian economy as the main contributing factors, noting that the Hungarian economy achieved 7.1 percent growth in 2021 — the country’s highest annual performance since the regime change. The last time GDP grew at this rate was in 1977. He also noted that Hungary’s investment rate ranks 2nd in the EU.

In terms of diversity, Prime Minister Orbán mentioned the machinery, food, chemical and electronics sectors as strengths, as well as the ongoing development of Hungary’s defense industry. He also spoke about taking advantage of Hungary’s geographical location, meaning ensuring that shipments from the East to the West go through the country. This has been made possible by investments in road development over the last 12 years. We have built 600 kilometers of motorways, but we need to improve our rail network as well, he said, citing the Belgrade-Budapest railway, designed to transport goods through Hungary.

On the subject of inflation, the prime minister said that rates are rising all over the world and that Brussels is making decisions that will only further increase energy prices, the biggest contributor to rising inflation, such as tax increases on those who own cars. “Exceptional situations call for exceptional measures,” he said, adding that in Hungary, a price freeze was introduced in four areas; apart from the public utility price cuts, the other three areas are only temporary measures.

The prime minister also spoke about five economic traps to be avoided in the next 10 years in order for the Hungarian economy to be successful. The first challenge is the high proportion of foreign-owned companies: Although we need to attract foreign capital to stay competitive, we also need a steadily improving ratio of Hungarian ownership, he said, adding that Hungarian ownership has already increased in several areas, including banking and media.

The second trap is the lack of small and medium-sized enterprises in the export sector, he said. Also, since 2010, the number of domestic firms capable of exporting has grown from 2,000 to 12,000, but 80 percent of export revenues are generated by foreign-owned firms and only 20 percent by Hungarians, he explained, adding that the aim is to increase the export contribution of domestic firms to 30 percent.

The other three traps entailed Hungary’s negative profit balance, low productivity, and the underdevelopment of rural areas. On productivity, PM Orbán did note the uptick in the productivity of Hungarian firms but stressed the importance of digitalization, automation and increased R&D. In terms of need for rural development, he said that in the next two years, the government will seek to spend three times more on this priority, adding that villages are a historic and crucial part of Hungary's identity.

The prime minister said the state must continue to provide support to avoid these pitfalls, noting that while in the 2021 budget, 12 percent of GDP was earmarked for such purposes, this number is slated to grow to 15 percent this year.

On the possibility of EU funds, Viktor Orbán said that we should have received these for crisis management, but due to political reasons, Brussels does not want to send them. Nevertheless, this is not impeding development, as the government has launched all planned programs from its own resources. The prime minister believes that payments from Brussels will eventually be received, in whole or in part, by the end of the year.

In closing, the prime minister said we must protect our tax system because it is the basis of our competitiveness. Tax margins are low for many groups, but they are higher than the EU average, he noted, for example, for those employed without children, and this is where we must make a firm tax reduction.

The event was also addressed by Finance Minister Mihály Varga, who said that the crisis was much more severe than in 2008, but the government at that time announced austerity measures, while the current one has opted for supporting families and businesses, stimulating investment and cutting taxes. The minister said the most important challenges in the coming years would be the transformation of global supply chains, the changing interest rate environment and, domestically, simultaneously maintaining fiscal balance and sustained growth. Varga also noted that Hungary’s inflation is currently the lowest among the Visegrád countries.

Photo credit: MTI