Hungary has enjoyed one of the highest growth rates in Europe in recent times

Hungary's success story is thanks in part to the government's adoption of unorthodox measures for economic recovery

Hungary has recently enjoyed one of the highest growth rates in Europe for both developed and developing countries, according to Forbes magazine.

In the past year, Hungarians have witnessed their proud nation come through the financial crisis to become an unusual success story throughout Central Europe.

Hungary became the country that analysts loved to hate, as the poor economic outlook was compounded by a massive leverage problem in households, the financial sector, and the government.

Instead of following an orthodox rulebook for crisis management, the government adopted their own measures that were not necessarily market friendly, but have seemed to work for economic recovery in the long-term.

It took several years to bring down household debt levels and stabilize the consumer, and since Hungary is closely tied to western Europe, malaise there carried through locally.

As Germany’s economy picked up, Hungary’s began to follow suit. Hungary has also benefitted from record low interest rates at home.

An absence of inflation in the European region combined with low oil and food prices has brought Hungary’s inflation close to zero and spurred the central bank to cut interest rates yet again.

A policy interest rate of 1.2 percent is amazingly low relative to the country’s historical context. Low rates and low gas prices continues to support the Hungarian consumer.

The government has restrained spending, generating a primary surplus and enacting a strict policy to reduce national debt denominated in foreign currency. As a result, Hungary has entered a coveted “twin-surplus” situation on its current account and (primary) fiscal accounts – a far cry from its situation in the run-up to 2008.

In terms of investments, Hungary’s equity market (the Budapest Stock Exchange) has had an amazing run from 2015 to the present day. The market really took off in the fourth quarter of 2015, as positive factors affecting the biggest companies came to the fore.

The prime minister also pledged to cut bank taxes, and the rating agency Fitch signaled a positive outlook on the country’s debt ratings.

Foreign investors can access the Hungarian stock market primarily through emerging market equity funds, either actively or passively managed. While Hungary’s markets are small, they are still significant in almost all emerging market indices.

While the government still needs to make progress on debt reduction, the economy has emerged successfully from the abyss. With a move back to investment grade ratings in the future, Hungary’s asset classes will likely perform more like developed markets than emerging.

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