Hungary's economic outlook - Restoring sustainable and inclusive growth March 2021 - Awex Export
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Hungary’s economic outlook Restoring sustainable and inclusive growth March 2021
Key highlights
Hungary entered the COVID-19 crisis with strong economic fundamentals that helped partially ab-
sorb the shock of the pandemic. Consistent economic policies over the last decade have contrib-
uted to a turnaround in employment and a positive investment dynamics, allowing the country to
become one of the fastest growing economies in Europe since 2013. This economic momentum has
led Hungary to record a milder recession in 2020 than other EU countries, with real GDP contracting
by 5.0% compared to 6.4% for the EU.
The country’s economic expansion over the last ten years has been achieved while preserving
fiscal balances, with a debt-to-GDP ratio on a firmly declining path and a fiscal deficit constantly
below the Maastricht threshold over 2012-2019. Supportive fiscal policies, combined with the ero-
sion of the tax base as a result of the pandemic, led to a one-off deterioration in fiscal deficit and
public debt metrics for 2020.
However, Hungary remains strongly committed to restoring fiscal discipline when the impact of
the crisis recedes. Public debt remains below the EU average and is expected to decrease from
2021 onwards, while a prudent medium-term debt management strategy will continue to be im-
plemented. Hungary benefits from a favourable debt structure thanks to permanent efforts to
lower the share of debt denominated in foreign currency, increase public debt’s average matu-
rity, and develop a highly diversified, deep, and liquid domestic debt market with a financially
inclusive retail bond market.
Although Hungary has been hard hit by the COVID-19 crisis like its neighbours, the Government
promptly took exceptional measures to contain the virus and alleviate the social and economic
impact of the pandemic by protecting lives and preserving jobs. An exceptional support package,
amounting to 30% of GDP, has been deployed, targeting companies, workers, and households, in
line with the recommendations of international institutions. The Central Bank has also implemented
accommodative monetary policies to mitigate the impact of the crisis on Hungary’s economy. The
launch of the vaccination campaign marks a new phase in the fight against the virus. The Govern-
ment expects Hungary to be able to vaccinate 6.8 million people by early June - 3.5 million more
people than similarly sized European countries, thanks to the country’s reliance on all available vac-
cines deemed safe. All these combined measures support estimates of a rapid return to growth, with
a double-digit growth rate of 14.2% YoY as soon as the second quarter of 2021.
Looking ahead, Hungary has a clear roadmap to achieve its vision of becoming one of the five
countries in Europe with the best quality of work and life by 2030. In that respect, the Government
recently announced a new action plan to ensure a sustainable economic recovery while promot-
ing social inclusion. Hungary will capitalize on its key comparative advantages, being the European
country with one of the highest employment and investment rates. In addition, Hungary aims to
unlock its full potential by expanding its position in the value chains, increasing competitiveness
through automation and robotics, investing more in higher education and vocational training, and
promoting a balanced regional development to enhance the country’s growth prospects.
31.1. MACROECONOMIC
MACROECONOMICAND
ANDFISCAL
FISCALUPDATE
UPDATE
1.1 Hungary entered the COVID-19 crisis with strong economic fundamentals that helped partially
1.1 Hungary entered the COVID-19 crisis with strong economic fundamentals that helped
absorb the shock
partially absorb the shock
Hungary has been among the fastest growing economies in Europe since 2013. This strong per-
Hungary
formance has has
beenbeen amongby
allowed the fastest growing
structural reformseconomies in Europe
implemented since
in the wake2013.
of This
thestrong
2008 crisis,
performance has been allowed by structural reforms implemented in the
including comprehensive reforms to the tax regime, which have contributed to a turnaround wake of the
2008 crisis, including
in employment. Growth hascomprehensive
been supported reforms to the tax regime,
by household which have
consumption, whilecontributed
investment also
to a turnaround in
picked up in recent years. employment. Growth has been supported by household consumption,
while investment also picked up in recent years.
The country entered the COVID-19 crisis from a relatively strong economic position. First estimates
Theacountry
indicate real GDP entered the
growth COVID-19 of
contraction crisis
5.0% from a relatively
in 2020 – betterstrong
thaneconomic
for the EU position.
at 6.2% –First
and the
estimates indicate a real GDP growth contraction of 5.0% in 2020 – better than
economic outlook is more favourable in Hungary than in many peer countries. Comprehensive and for the EU
at 6.2%
effective crisis–management
and the economic outlook
measures alsois contributed
more favourable in Hungary
to a relatively thanmoderate
more in many peer
decline in
countries.
real GDP growthComprehensive and effective crisis management measures also contributed
for Hungary in 2020.
to a relatively more moderate decline in real GDP growth for Hungary in 2020.
2013-2021e real GDP growth (YoY, %)
6 5,4
4,8 4,6 4,5
4,2 4,3
3,8 4,3
4 4,1
2,8 2,6 3,7
2,1 4,1
1,9 3,0
2 2,8
0,6 2,3 2,1
1,6 2,0 1,6
-
-
(2)
(4,5)
(4)
(5,0)
(6)
(6,2)
(8)
2013 2014 2015 2016 2017 2018 2019 2020e 2021e
Hungary V3 average EU
Sources: Ministry of Finance, Eurostat, European Commission: Economic Forecast – Autumn 2020, KSH
4
31.2 Public debt will
1.2 Public debttemporarily increase
will temporarily in 2020
increase indue
2020todue
the to
economic downturn
the economic caused
downturn by the pan-
caused
demicbyandtheapandemic
higher public
anddeficit, butpublic
a higher fiscaldeficit,
consolidation remains
but fiscal a priority
consolidation remains a priority
2016-2021e public deficit (% GDP) 2016-2021e public debt (% of GDP)
10 100
93,9 94,6
9 8,5 95
8,4
8 90
84,0
7 6,5 85 81,5
79,5
6 80 77,6
6,1
81,0 80,8
5 75
74,9
4 70
72,2
3 2,4 65 69,1
1,8 2,1 2,1
65,5
2 60
1,4
1 0,8 55
0,4
0,5
- 50
2016 2017 2018 2019 2020e 2021e 2016 2017 2018 2019 2020e 2021e
Hungary EU Hungary EU
Sources: Ministry of Finance, Eurostat, European Commission: Economic Forecast – Autumn 2020
Hungary’s
Hungary’s debt-to-GDP
debt-to-GDP ratio on
ratio was wasa on a firmly
firmly declining
declining pathpath between
between 20112011
and and 2019,
2019, andandits level
its level was more than 10 percentage points below the EU’s average
was more than 10 percentage points below the EU’s average debt ratio as of December 2019. This debt ratio as of
December
trajectory, from 80%2019. This trajectory,
of debt-to-GDP fromto80%
in 2011 65%of debt-to-GDP
before in 2011results
the pandemic, to 65%frombefore the fiscal
effective
pandemic,
consolidation results
efforts from effective
implemented overfiscal consolidation
the past few years, efforts implemented
with a fiscal over the past
deficit constantly below the
few years,
Maastricht withfrom
threshold a fiscal
2012deficit constantly below the Maastricht threshold from 2012 to
to 2019.
2019.
The Government has taken exceptional measures to contain the virus and alleviate the social
The Government
and economic impact hasof thetaken exceptional
COVID-19 measures
crisis. This, to contain
together with thethe virus and
erosion alleviate
of the tax basethedue to
social andhas
the pandemic, economic
led to aimpact of the
temporary COVID-19
increase crisis.deficit
in fiscal This, together with the
and public debt erosion of However,
in 2020. the
budgettaxdeficit
base was
due into line
the with European
pandemic, haspeers
led toduring the pandemic
a temporary increasewhile public
in fiscal debt
deficit remains
and
belowpublic
the EUdebt
average.
in 2020. However, budget deficit was in line with European peers during the
pandemic while public debt remains below the EU average.
Although the focus will remain on containing the pandemic and relaunching the economy in the
months to come,the
Although fiscal consolidation
focus will remainis aonpriority for Hungary.
containing Reducing and
the pandemic public debt represents
relaunching the one
of the economy
main objectives of the Government
in the months under
to come, fiscal Hungary’s Fundamental
consolidation is a priority forLaw, whichReducing
Hungary. states that only
budgets that provide for a reduction of the public-debt-to-GDP ratio can be
public debt represents one of the main objectives of the Government under Hungary’s adopted as long as
the Government
Fundamental debtLaw,exceeds
which 50% ofthat
states GDP.only
Thebudgets
public-debt-to-GDP
that provideratio
for awill hence progressively
reduction of the
decrease from 2021 onwards.
public-debt-to-GDP ratio can be adopted as long as the Government debt exceeds 50%
of GDP. The public-debt-to-GDP ratio will hence progressively decrease from 2021
onwards.
5
41.3 Hungary’s public debt structure remains favourable despite the crisis, supported by a
1.3 Hungary’s
prudent public debt structure
debt management remains favourable despite the crisis, supported by a prudent
strategy
debt management strategy
It is also important to note that a sound debt management strategy has continued to be
It is also important to note that a sound debt management strategy has continued to be implement-
implemented despite the crisis. Hungary benefits from a very favourable public debt
ed despite the crisis. Hungary benefits from a very favourable public debt structure, with a share of
structure, with a share of foreign-currency denominated debt below 20% – a key
foreign-currency denominated debt below 20% – a key objective for the Government – despite the
objective for the Government – despite the successful issuance of several international
successful issuance of several international bonds during 2020. This achievement results from the im-
bonds during 2020. This achievement results from the implementation of Hungary’s “self-
plementation of Hungary’s “self-financing policy” aiming to increase the resilience of the country’s
financing policy” aiming to increase the resilience of the country’s public finance by
public finance by reducing the share of debt denominated in foreign currencies. Hungary enjoys a
reducing the share of debt denominated in foreign currencies. Hungary enjoys a highly
highly diversified, deep, and liquid domestic market fuelled by its MAP+ program introduced in 2019,
whichdiversified,
has allowed deep,
the and liquid domestic
development of themarket fuelledand
retail market by itsthe
MAP+ program
expansion ofintroduced in
a stable domestic
investor 2019,
basewhich
whilehas allowed financial
supporting the development
inclusion. of the
This retail market
financially and retail
inclusive the expansion
bond market of arepre-
stablec.
sents today domestic investor
25% of total debt.base while supporting
In addition, financial inclusion.
the term-to-maturity This financially
of Hungary’s inclusive
public debt continues
retail bond market represents today c.
to increase, reaching 5.3 years as of February 2021. 25% of total debt. In addition, the term-to-maturity
of Hungary’s public debt continues to increase, reaching 5.3 years as of February 2021.
Government debt by currency Government debt structure
(% of total) (as of 01.02.2021)
)
HUF Debts Foreign currency debts
19,6%
80,4%
Note 1. Excluding foreign currency deposits held by AKK as a collateral for repo and risk management transactions
Source: AKK
Credit ratings’ stability throughout the crisis and a positive revision of Moody’s outlook
Credit ratings’ stability throughout the crisis and a positive revision of Moody’s outlook from stable
from stable to positive in September 2020 also demonstrate Hungary’s strong resilience,
to positive in September 2020 also demonstrate Hungary’s strong resilience, while a number of peer
while a number of peer countries have been downgraded at least once since the
countries have been downgraded at least once since the beginning of the Covid-19 crisis. Credit
beginning of the Covid-19 crisis. Credit rating agencies (S&P, Moody’s and Fitch)
rating agencies (S&P, Moody’s and Fitch) underline the country’s strong structural indicators and ex-
cellentunderline the country’s
track record strong
in terms of structural
economic indicators
growth. and excellent
They expect track record
the economy in terms
to recover as of
soon as
economic
2021, in growth. They
line with authorities’ expect the economy to recover as soon as 2021, in line with
forecasts.
authorities’ forecasts.
5
62. IMPACT AND RESPONSE TO THE COVID-19 PANDEMIC
2. IMPACT
2.1 HungaryAND has beenRESPONSE
deeply affectedTO THE COVID-19
by the COVID-19, PANDEMIC
like all its neighbours, but
promptly took exceptional measures to contain the virus and is now engaged in a
massive
2.1 Hungary vaccination
has been deeply campaign
affected by the COVID-19, like all its neighbours, but promptly took
exceptional measures to contain the virus and is now engaged in a massive vaccination campaign
As of February 28, 2021, the total number of confirmed coronavirus cases in Hungary is of
As of February 28, 14,974
428,599 with 2021, the total1. number
deaths of confirmed
The first coronavirus coronavirus
cases cases inon
were identified Hungary
March 4, is 2020
of 428,599
with 14,974 deaths1 . The first coronavirus cases were identified on March 4,
in the country – compared to January 31, 2020 in Italy. The Government promptly took 2020 in the country –
compared to January
measures 31, 2020
to limit the Thethe
in Italy.with
pandemic, Government
introductionpromptly
of a statetook measures to
of emergency as limit
soontheas pan-
demic,March
with the introduction of a state of emergency as soon as March 2020.
2020.
Impact of the COVID-19 pandemic in Hungary and peer countries (as of 28.02.2021)
14%
12% 11,6%
10%
8% 6,9%
5,6% 5,8%
6% 4,9%
4,4% 4,5%
4% 2,9%
2%
0,08% 0,15% 0,12% 0,16% 0,13% 0,13% 0,15% 0,19%
-
Germany Hungary Poland Italy Slovakia France Spain Czech
Republic
Confirmed cases (% population) Deaths (% population)
Sources: Johns Hopkins University (Coronavirus Resource Center), IMF
Several restrictive measures, such as a curfew or the prohibition of public gatherings,
Severalremain in force
restrictive to protect
measures, suchallasHungarian
a curfew lives.
or theThese measures
prohibition could gatherings,
of public be phased remainout in
progressively
force to if the trendlives.
protect all Hungarian becomes more favourable.
These measures could be The Government
phased will however
out progressively if the trend
becomesclosely
moremonitor the situation
favourable. in other countries
The Government and the
will however specific
closely conditions
monitor in Hungary
the situation in othertocoun-
tries and the specific
decide conditions
how to best proceedinasHungary to decidemutations
more contagious how to best proceed
could lead to aasdeterioration
more contagious
mutations could
of the lead to a deterioration of the situation.
situation.
While the pandemic
While is not over,
the pandemic is notthe launch
over, of the vaccination
the launch campaign
of the vaccination marks a
campaign new phase
marks a new in the
fight against
phase the virus.
in the Theagainst
fight Government expects
the virus. TheHungary to be able
Government expectsto vaccinate
Hungary 6.8 million
to be ablepeople
to by
early June, 3.5 million
vaccinate more than
6.8 million people in European countries
by early June, of similar
3.5 million moresizethan
thanks to its reliance
in European on all avail-
countries
able vaccines
of similardeemed safe. to
size thanks More
its specifically,
reliance onauthorities planvaccines
all available on the Russian
deemed vaccine
safe.forMore
1.0 million
people and Chinese vaccine for 2.5 million people.
specifically, authorities plan on the Russian vaccine for 1.0 million people and Chinese
vaccine for 2.5 million people.
1 Johns Hopkins University (Coronavirus Resource Center)
6
1
Johns Hopkins University (Coronavirus Resource Center)
72.2 An exceptionally large support package to combat the economic and social impacts of the
2.2 An exceptionally large support package to combat the economic and social
pandemic has also been adopted by the Government
impacts of the pandemic has also been adopted by the Government
The Government has introduced social and economic measures on an unprecedented scale to pro-
The Government has introduced social and economic measures on an unprecedented
tect households, workers, and companies, in line with what international financial institutions (IMF,
scale to protect households, workers, and companies, in line with what international
World Bank, OECD, etc.) recommend.
financial institutions (IMF, World Bank, OECD, etc.) recommend.
Scale of the measures introduced in Preliminary budget deficit for 2020
2020 (HUFbn) (% of GDP)
(18,0%)(13,0%)(8,0%) (3,0%)
Job protection,
creation, training 283
0,2% Balancing measures
Tax and
contribution 426 Planned deficit before
measures (1,0%) the pandemic
Epidemic Control
1 027 Impact of tax relief
Fund (0,5%)
measures
Capital guarantee Add. expenditures on
on loan programs 2 103 (1,3%) health protection
regarding of epidemic
Economic Impact of economic
Protection Fund 4 031 (2,0%) downturn on tax
revenues
Paym. moratorium, Add. expenditures on
Funding For Growth 6 100 (3,9%) protection and restart
Scheme GO of the economy
Total 13 970 (8,5%) Total
Source: Ministry of Finance
These measures amount to close 30% of GDP in total2. They include direct budgetary
These measures amount to close 30% of GDP in total2 . They include direct budgetary measures with
measures with tax cuts, wage subsidies, but also indirect ones with debt repayment
tax cuts, wage subsidies, but also indirect ones with debt repayment moratorium or the extension
moratorium or the extension of a public guarantee programmes. More specifically, the
of a public guarantee programmes. More specifically, the Government established two budgetary
Government established two budgetary funds in April 2020 to provide the necessary
funds in April 2020 to provide the necessary resources to fight the pandemic and restart the econ-
resources to fight the pandemic and restart the economy:
omy:
• HUF 1,027bn were spent through the Epidemic Control Fund to finance the costs
• HUF 1,027bn were spent
of protection through
against the the Epidemic
pandemic. ToControl Fund to
serve these finance the
objectives, newcosts of were
taxes protection
againstalso
the pandemic. To serve
created – with these objectives,
an estimated budget new taxes
of HUF were– also
100bn 3 and created – with
additional an esti-
funds
mated budget of HUF 100bn 3
– and additional funds spent by Governmental
spent by Governmental bodies (approximatively HUF 600bn by the end of bodies (approxi-
mativelyNovember)
HUF 600bn by the end of November)
HUF 4,031bn were spent through the Economic Protection Fund and withdrawals
• HUF •4,031bn were spent through the Economic Protection Fund and withdrawals from ministries
fromofministries
by the end November by 2020
the end of November
to ensure 2020 and
job protection to ensure jobprotect
creation, protection and
priority sectors,
creation, protect priority sectors, families and pensioners,
families and pensioners, and finance domestic enterprises (see below) and finance domestic
enterprises (see below)
Focus on the Government’s Economic Protection Plan announced in April 2020
2
Measures to be implemented over several years
3
HUF 45bn from the special retail tax and HUF 55bn through the modification of the bank levy
2 Measures to be implemented over several years
3 HUF 45bn from the special retail tax and HUF 55bn through the modification of the bank levy
8
7§ Administrative and tax burden reliefs to ensure work flexibility, including through the
Job protection reduction of the social contribution tax
§ Wage supplements provided by the Government
§ Simplified tender arrangement for innovative companies or companies with
Job creation planned investments
§ More flexible award conditions introduced for university degrees
§ Investment support schemes, subsidised guaranteed loans, support for infrastructure
Priority sectors
developments and tax cuts over the next three years
protection
§ Targeted sectors including tourism, health, food industry, agriculture
Domestic
§ Subsidized guaranteed loans and State guarantee program
enterprises
§ Capitalisation programmes to protect Hungarian companies
financing
Measures to help § 13th month pension to be reintroduced in the pension allowance from 2021 onwards
families and § Liquidity assistance provided to households including through the repayment
pensioners moratorium or the extension of various maternity entitlement
Source: Ministry of Finance
The Central Bank of
The Central Hungary
Bank also revised
of Hungary its monetary
also revised policy
its monetary framework
policy to mitigate
framework the effects
to mitigate the of
the pandemic
effects ofon thethe real economy
pandemic on theand
realfinancial
economy markets. It has developed
and financial a balanced
markets. It has developedapproach
a
to ensure ample liquidity and achieve low long-term rates, with highly accommodative policy rates,
balanced approach to ensure ample liquidity and achieve low long-term rates, with
enhanced liquidity through the introduction of new facilities, asset purchase programs and a new
highly accommodative policy rates, enhanced liquidity through the introduction of new
and enlarged Funding for Growth Scheme to ensure access to required and affordable funding for
facilities, asset purchase programs and a new and enlarged Funding for Growth Scheme
domestic Small and Medium Enterprises (SMEs).
to ensure access to required and affordable funding for domestic Small and Medium
Enterprises (SMEs).
The comprehensive support package deployed by the Government underpins the expectation of a
rapid return to a dynamic growth path for the country, especially as a new action plan has recently
The comprehensive support package deployed by the Government underpins the
been announced. According to the Ministry of Finance’s estimates, these measures already man-
expectation of a rapid return to a dynamic growth path for the country, especially as a
aged to mitigate the rate of economic decline by 5.6 percentage points while the support schemes
new 586
protected action plan has
thousand recently been announced. According to the Ministry of Finance’s
jobs.
estimates, these measures already managed to mitigate the rate of economic decline
by 5.6 percentage points while the support schemes protected 586 thousand jobs.
9
83. ECONOMIC OUTLOOK AND THE WAY FORWARD
3. ECONOMIC OUTLOOK AND THE WAY FORWARD
3.1 action
3.1 A new A newplanaction
has plan
been has been announced
announced by the Government
by the Government to economic
to further boost further boost
recovery
economic
and social recovery and social inclusion
inclusion
The Government
The Government announcedannounced
a newaaction
new action plan
plan in in February
February 2021
2021 to to ensure
ensure a sustainable
a sustainable economic
economic recovery while promoting social inclusion. The long-term goal of the country
recovery while promoting social inclusion. The long-term goal of the country is to return to its dynam-
ic growth
is to trajectory
return to itspre-COVID-19
dynamic growthandtrajectory
to become one of the five
pre-COVID-19 andcountries
to become in Europe withfive
one of the the best
qualitycountries
of work and life bywith
in Europe 2030.
the best quality of work and life by 2030.
In thatInrespect, the new
that respect, theaction plan plan
new action is expected to betoimplemented
is expected be implemented in three phases
in three andand
phases includes
ambitious and ambitious
includes unprecedented measures in a measures
and unprecedented wide arrayinofa sectors (seeofbelow).
wide array sectors (see below).
Overview of the key measures of the new action plan announced on Feb. 15, 2021
§ VAT reduced on new home constructions from 27% to 5%
Housing
§ Up to HUF 6m of 10Y loans to be granted for home renovations
§ Gradual phasing in 4 steps of the payment of a 13th month pension
Social protection
§ Exemption from personal income tax for people below the age of 25 with lower salaries
§ Large medical wage increase program being launched
Healthcare § HUF 65bn granted to domestic healthcare manufacturers as part of the Health Industry Funding
Scheme
§ Wage subsidies for businesses in difficulties (50% of the wage paid by the State and no salary
Assistance business contributions payment)
in difficulties and SMEs § Up of HUF 10m of 10-year interest free loans to be granted to SMEs with a 3-year credit
moratorium
§ Between HUF 1,500bn and HUF 2,000bn to be allocated to the development of higher
Education
education
§ Development of green energies and building of 12 GW of solar power capacities by 2040
Sustainable and
§ Initiatives to develop green public and private transportations and promote the circular
“green” development
economy
§ Ensure full digitalization to develop an efficient and competitive economy based on modern
Competitiveness
technologies and information networks
Source: Ministry of Finance
9
103.2 Hungary’s comparatively low level of unemployment will support the country’s
3.2 Hungary’s comparatively
sustainable recovery low level of unemployment will support the country’s sustainable recovery
Hungary benefits
Hungary from one
benefits of one
from the lowest
of thelevels
lowestoflevels
unemployment in Europe,inwith
of unemployment an unemployment
Europe, with an
rate of 4.3% as of December 2020 despite the pandemic.
unemployment rate of 4.3% as of December 2020 despite the pandemic.
Unemployment rate in Europe in December 2020 (seasonally adjusted data, %)
16,2
10,0
9,0 8,9 8,7
8,4 8,2
7,5 7,5 7,3 7,2
7,0 6,7 6,5
5,8 5,8 5,8
4,9 4,8 4,7 4,6 4,5
4,3 3,9
3,3 3,1
hu n
ia
EU
Slo nd
nd
xe k i a
Be ri a
Po s
ia
ia
he ry
Sw ce
Fr ly
P o u rg
D ium
I re s
m k
Re nd
Slo ria
ic
A al
er ia
ta
Fin n
y
Bu nia
ru
nd
Ro ar
an
Lit ai
e
Ita
a
bl
at
an
tv
g
n
al
t
a
ed
la
la
la
an
yp
Lu va
Sp
ve
m
us
a
N ung
rtu
b
rla
pu
lg
La
m
lg
ro
M
m
en
C
C
H
G
et
ch
ze
C
Sources: Eurostat, KSH
Whereas employment declined in last spring due to the pandemic, the labour market
Whereas employment declined in last spring due to the pandemic, the labour market started to
started to recover as soon as Q2 2020 following the lifting of restrictions, the end of
recover as soon as Q2 2020 following the lifting of restrictions, the end of temporary industrial shut-
temporary industrial shutdowns and the recovery of domestic tourism in mid-summer.
downs and the recovery of domestic tourism in mid-summer.
Wages dynamics also remained strong during the year – with real value of wages in
Wages dynamics also remained strong during the year – with real value of wages in Hungary increas-
Hungary increasing by 6.2% in 2020. This favourable labour market trends support
ing by 6.2% in 2020. This favourable labour market trends support economic recovery through house-
economic recovery through household consumption, especially as wages are expected
hold consumption, especially as wages are expected to further rise on the back of a global rebound.
to further rise on the back of a global rebound.
3.3 Hungary’s investment dynamics, targeted policy support as well as the effective absorption of
3.3 Hungary’s investment dynamics, targeted policy support as well as the effective
EU funding are also supportive of the country’s economic outlook
absorption of EU funding are also supportive of the country’s economic outlook
Hungary benefits from a very high investment rate with the second highest in Europe for the first nine
months Hungary
of 2020,benefits from a27%
representing veryofhigh
GDP.investment rate with the
Effective investment second highest
incentives in Europe
have been for
developed by
the first nine months of 2020, representing 27% of GDP. Effective investment incentives
the country in recent years such as large corporation investment subsidy programs, training subsidies
or tax have beenBesides,
incentives. developed by the
Hungary’s country
public in recent
investment rate isyears such as
the highest largeallcorporation
among European coun-
investment subsidy programs,
tries at 5.4% of GDP (2020 Q1-Q3). training subsidies or tax incentives. Besides, Hungary’s
public investment rate is the highest among all European countries at 5.4% of GDP (2020
Q1-Q3).
10
11National investment rate in 2020 Q1-Q3 Public investment rate in 2020 Q1-Q3
(% of GDP)
National investment rate in 2020 Q1-Q3 (% of GDP)
Public investment rate in 2020 Q1-Q3
(% of GDP) (% of GDP)
Ireland 30.3 Hungary 5.4
Hungary 27.0 Estonia 5.2
Romania
Ireland 25.7 Sweden
Hungary 4.7 5.4
30.3
Estonia
Hungary 25.5 Czech Republic
Estonia 4.5
27.0 5.2
Austria
Romania 25.0
25.7 Croatia
Sweden 4.54.7
Czech Republic
Estonia 24.5 Finland
Czech Republic 4.5
4.5
25.5
Sweden
Austria 24.2 Luxembourg
Croatia 4.24.5
25.0
Finland
Czech Republic 23.8
24.5 Latvia
Finland 4.1 4.5
Denmark
Sweden 22.4
24.2 Malta
Luxembourg 4.04.2
Latvia
Finland 22.4 Slovenia
Latvia 3.7 4.1
23.8
France
Denmark 22.4 Poland
Malta 3.74.0
22.4
Belgium
Latvia 22.2
22.4 Denmark
Slovenia 3.6
3.7
Croatia
France 22.1
22.4 Netherlands
Poland 3.53.7
Germany
Belgium 22.0 France
Denmark 3.5
3.6
22.2
Malta
Croatia 21.6 Romania
Netherlands 3.4
3.5
22.1
EU 27
Germany 21.4
22.0 Bulgaria
France 3.4
3.5
Netherlands
Malta 21.2
21.6 EU 27
Romania 3.13.4
Lithuania
EU 27 20.8 Austria
Bulgaria 3.0 3.4
21.4
Spain
Netherlands 19.7 Lithuania
EU 27 2.93.1
21.2
Slovenia
Lithuania 19.5
20.8 Slovakia
Austria 2.9
3.0
Portugal
Spain 19.1
19.7 Italy
Lithuania 2.62.9
Slovakia
Slovenia 18.9 Germany
Slovakia 2.62.9
19.5
Cyprus
Portugal 18.2
19.1 Spain
Italy 2.5
2.6
Italy
Slovakia 18.0
18.9 Ireland
Germany 2.5
2.6
Bulgaria
Cyprus 16.5
18.2 Belgium
Spain 2.5
2.5
LuxembourgItaly 15.3 18.0 Greece
Ireland 2.5
2.5
Poland
Bulgaria 14.9
16.5 Portugal
Belgium 2.0 2.5
Greece
Luxembourg 10.8 15.3 Cyprus
Greece 1.9 2.5
Poland 14.9 Portugal 2.0
Greece 10.8by the Ministry of Finance Cyprus 1.9
Source: Eurostat, calculations
Source: Eurostat, calculations by the Ministry of Finance
Hungary is among the top 10 countries in terms of investment per capita and the country’s
ability
Hungary
Hungary to is
is among attract
the Foreign
among top
the10top Direct
countriesInvestments
in terms
10 countries of(FDIs)
in terms has been
investment preserved
per capita
of investment anddespite
per capita the the
and the crisis.
country’s ability to
country’s
attractSince
Foreign
ability the Direct
to attract Investments
beginning of 2020,
Foreign (FDIs)
Direct over has
HUFbeen
2,500bn
Investments preserved
(FDIs)ofhas despite
investment
been the5.4%
(c.
preservedcrisis.
ofSince
GDP)
despite the beginning
in crisis.
the total
of 2020,
wereoverannounced
Since HUFbeginning
the 2,500bn andofofshould
investment
over(c.
2020, boost 5.4%
export
HUF of GDP)
volumes
2,500bn of in total
and were
GDP
investment announced
in(c.
the5.4%
forthcomingand periods
of GDP) should
in total boost
exportwere
volumes
by 20-34% and GDP
and 8-10%
announced in the forthcoming
andrespectively. periods by 20-34% and 8-10% respectively.
should boost export volumes and GDP in the forthcoming periods
by 20-34% and 8-10% respectively.
High-volume investments announced since early 2020 (HUFbn)
High-volume
680 investments announced since early 2020 (HUFbn)
680
100
100 75 66 74
63 60 60
75 50
44 74
66 63 60 60 36 35
50 25 22 22 18
44 14 14 14 14 13 12 11 11 11 11 11 11 9 9
36 35 8 8 8 8 7 6 6 6 6 6 6 5 5 5 5
25 22 22
18 14 14 14 14 13 12
11 11 11 11 11 11 9 9 8 8 8 8 7 6 6 6 6 6 6
5 5 5 5
NestléNestlé
Lenovo
Defense
Continental
Glencore
Diligent
Tolnatej
Semcorp
SanofiSanofi
Gyermelyi
Wewalka
BorgWarner
UniverUniver
Sangsin
Samyang
Mercedes
Kischemicals
Aluminum
FlisomFlisom
Béres Béres
SMG SMG
JYSK JYSK
Wellis Wellis
Furnishings
Chervon-Auto
Ind. Ind.
Ind. Ind.
Pick Szeged
Zalakerámia
LindeLinde
SchottSchott
Dongwha
Food Food
Doosan
Rheinmetall
Lidl Lidl
SK innovation
Rosenberger
Aldi Aldi
JWH JWH
Material
Processor
Sick Sick
BorsodChem
HUF5bn
KedaliKedali
KedaliKedali
Lenovo
Tolnatej
Defense
Continental
Glencore
Diligent
Gyermelyi
Semcorp
Wewalka
BorgWarner
Sangsin
Samyang
Kischemicals
Mercedes
Furnishings
Aluminum
Chervon-Auto
Pick Szeged
Zalakerámia
Dongwha
Rheinmetall
Doosan
SK innovation
Rosenberger
Processor
Material
BorsodChem
Sugo Sugo
HUF5bn
underunder
NobelNobel
Building
TurkeyTurkey
Lotte Lotte
MMXH
Shenzhen
Shenzhen
Building
projects
Dynamit
MMXH
Shenzhen
Shenzhen
Gallfood
Stavmat
projects
Dynamit
Gallfood
Stavmat
OtherOther
Source: Ministry of Finance
11
12
11Source: Ministry of Finance
In order to further attract foreign investors and boost the domestic economy, the
Government implemented additional measures to incentivize investment and support
In order to further
exports: theattract foreign credit,
HUF 1,490bn investors and boostand
guarantee the domestic economy,
equity schemes the Government
of the Hungarian im-
plemented additionalBank,
Development measures
the to incentivize
mitigation investment
program and support
package exports: the
of Eximbank, HUFthe
and 1,490bn
credit,competitiveness-enhancing
guarantee and equity schemes support to help medium-sized and large enterprises pro-
of the Hungarian Development Bank, the mitigation
gram package of Eximbank, and the competitiveness-enhancing support to help medium-sized
operating in the manufacturing and business services sector. In addition, the amount of
and large enterprises operating in the manufacturing and business services sector. In addition,
investment aid for large enterprises was expanded, special economic zones were
the amount of investment aid for large enterprises was expanded, special economic zones were
established, and companies investing in Hungary have been granted corporate tax
established, and companies investing in Hungary have been granted corporate tax exemption on
exemption on re-invested profits for the next four years.
re-invested profits for the next four years.
To complement this investment dynamics, targeted policy support is provided to
To complement this investment dynamics, targeted policy support is provided to strategic sectors,
strategic sectors, most notably the health industry. An ambitious Health Industry Funding
most notably the health industry. An ambitious Health Industry Funding Scheme (ETP / Egészsé-
Scheme (ETP / Egészségipari Támogatási Program) has been designed to address some
gipari Támogatási Program) has been designed to address some vulnerabilities identified during
vulnerabilities
the COVID-19 crisis. identified
It providesduring
for HUFthe COVID-19
68.0bn to be crisis. It provides
allocated for HUF
to domestic 68.0bn tomanufac-
healthcare be
allocated to domestic healthcare manufacturers to ensure that the procurement
turers to ensure that the procurement and manufacturing of sanitizers, masks, surgical gloves and and
manufacturing
ventilators among others of sanitizers,
can be masks,
carriedsurgical glovesHungarian
out through and ventilators among 51
investments. others can be were
companies
alreadycarried out a
granted through Hungarian
HUF 55.6bn subsidyinvestments. 51with
for projects companies were of
a total value already granted
HUF 71.3bn a HUF
in the first two
55.6bn subsidy
phases of this scheme. for projects with a total value of HUF 71.3bn in the first two phases of this
scheme.
Results of the Health Industry Funding scheme (HUFbn)
12,4 68,0
5,1 55,6
17,0
33,4
Phase 1 Phase 2 (2020) Phase 2 (2021) Total phases 1-2 Phase 3 Total phases 1-3
2020 2021
Source: Ministry of Finance
Financial support from the EU and the effective absorption of EU funds will also contribute
Financial support from
to Hungary’s the EU and
economic the effective
recovery absorption Untapped
and development. of EU fundsresources
will also contribute to Hunga-
from the 2014-
ry’s economic recovery and development. Untapped resources from the 2014-2020 EU cycle as well
2020 EU cycle as well as EU’s recently launched Next Generation EU Funds will be
as EU’s recently launched Next Generation EU Funds will be channelled to Hungary’s economy from
channelled to Hungary’s economy from 2021 onwards, further supporting investment
2021 onwards, further supporting investment and growth.
and growth.
12
13Next Generation EU funds by country:
EU funds available to Hungary over
recovery and resilience
Next Generation EU fundsfacility
by country:
2021-2027 (€bn at 2018
EU funds available prices) over
to Hungary (% of 2019and
recovery GDP)
resilience facility
2021-2027 (€bn at 2018 prices)
(%Croatia
of 2019 GDP) 11,6
Bulgaria 10,3
Croatia
Greece 9,7 11,6
Bulgaria
Slovakia 6,7 10,3
Other Greece
Latvia 6,6 9,7
€2,4bn Slovakia
Portugal 6,7
6,5
Next Other Latvia
Romania 6,6
6,4
Generation 5%
€2,4bn Cohesion Portugal
Spain 5,6 6,5
EUNext
bonds policy Romania
Hungary 4,9 6,4
5% Cohesion
€10,0bn 20%
Generation €20,0bn Spain
Lithuania 4,5 5,6
EU bonds policy Hungary
Poland 4,9
39% 4,5
€10,0bn 20% €20,0bn Lithuania
Cyprus 4,5
4,5
Next 39% Poland
Italy 3,84,5
Generation Cyprus
Slovenia 3,74,5
Next
EU Italy
Estonia 3,8
3,6
15%
Generation Slovenia
Czechia 3,23,7
recovery
EU 15% Estonia
Malta 2,2 3,6
fund
recovery 21% Czechia
France 1,6 3,2
€7,6bn
fund Malta
Belgium 1,2 2,2
€7,6bn 21%CAP France
Austria 0,91,6
€10,6bn Belgium
Finland 1,2
0,9
CAP Austria 0,9
Germany 0,7
€10,6bn Finland 0,9
Netherlands 0,7
Germany
Sweden 0,7
0,7
Netherlands
Denmark 0,7
0,5
Sweden
Ireland 0,7
0,3
Denmark
Luxembourg 0,5
0,2
Ireland 0,3
Luxembourg 0,2
Sources: European Commission, Ministry of Finance, Eurostat
Sources: European Commission, Ministry of Finance, Eurostat
3.4 In 3.4
thisIncontext,
this context, Hungary
Hungary should
should return
return to to economic
economic growthwith
growth withaa double-digit
double-digit growth
growth rate
as soonrate
3.4asInasQ2soon
this as Q2Hungary
context,
2021 2021 should return to economic growth with a double-digit growth
rate as soon as Q2 2021
Hungary
Hungary shouldshould
returnreturn to economic
to economic growth
growth with with a double-digit
a double-digit growth
growth raterate as soon
as soon as as
Q2Q2 2021 on
2021
the back on
of the
the back of the
Government’s Government’s
action plan action
and plan
the and
launch the
of launch
an of an
efficient efficient
COVID-19
Hungary should return to economic growth with a double-digit growth rate as soon as Q2 COVID-
vaccination
campaign.
19
2021 Q2the
on 2021
vaccination growth
back of therate
campaign. is anticipated
Q2 2021 growth
Government’s atrate
action 14.2%
plan YoYthe
which
is anticipated
and is
atthe
launch highest
14.2%
of an YoY growth
which
efficient rate ever
is the
COVID-
anticipated
highestfor the country.
growth
19 vaccination rate ever anticipated
campaign. for therate
Q2 2021 growth country.
is anticipated at 14.2% YoY which is the
highest growth rate ever anticipated for the country.
Changes in GDP in Hungary (YoY, %)
Changes in GDP in Hungary (YoY, %) 14,2%
14,2%
4,6% 4,8%
2,3%
4,6% 4,8%
2,3%
(3,6%) (4,5%)
(4,6%)
(3,6%) (4,5%)
(4,6%)
(13,4%)
(13,4%)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 2020 Q3 Q4 Q1 Q2 2021 Q3 Q4
2020
Sources: KSH (March 2021 – unadjusted, 2021
raw data), calculations by the Ministry of Finance
Sources: KSH (March 2021 – unadjusted, raw data), calculations by the Ministry of Finance
13
14
13Published by Ministry of Finance
2-4 József nádor tér, Budapest, 1051
Responsible publisher:
Cabinet of Ministers of the Ministry of Finance
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