Hungary’s Economy: More Growth Without More Debt

PricewaterhouseCoopers’ recently published the findings of its annual survey of Hungarian CEOs. Results show that Hungary’s top managers are quite upbeat, 82 percent saying they see a positive future for their companies, while only 46 percent express confidence in global economic growth.


A recent post over at Forbes puts Hungary’s state bonds on the top 10 must-buy investments, mentioning that the policies of the Hungarian central bank support growth and that the Orbán Government is pro-growth too, particularly in fiscal policies that boost investor confidence.

Investors disappointed about the FED’s cautious base-rate policy may want to consider turning to Hungarian state bonds instead. But if they do, that’s not just because of Forbes’ tip but also because Hungary’s strict financial and monetary policies have spurred significant GDP growth without increasing state debt. No wonder then that experts say that Hungary’s economy is due for a credit rating upgrade. Markets seem to share the optimism of those Hungarian CEOs. Let’s have a look at some of the reasons behind that optimism.


“If we consider our economy in light of the half century between 1960 and 2010, we may see that it was only capable of fast growth when it accumulated significant external debt. The historic significance of the performance of the Hungarians today is that the growth that started in 2014 is not undermining our external trade balance.” Prime Minister Viktor Orbán, State of the Nation speech, February 27th, 2015
“Hungary is getting on a growth path that allows expansion without increasing state debt.” Mihály Varga, Minister for National Economy

These two quotes offer good explanation of why some continue to be bullish on Hungary. According to preliminary data, Hungary’s GDP growth in 2014 reached 3.6 percent, putting it among the highest in the EU and silencing those critics who had said that any forecasts above 3 percent were too optimistic. The annual budget deficit, meanwhile, remained under the 3 percent Maastricht threshold. Elsewhere in the EU, Greece is still negotiating bailout packages, while France struggles to get its budget deficit under 3 percent, a target they have been unable to reach since the beginning of the financial crisis. High unemployment continues to plague many EU member states, but in Hungary, joblessness has hit new record lows.

With last year’s GDP growth, Hungary’s GDP has climbed back to the pre-crisis level. Managing to expand while at the same time reducing the debt-to-GDP ratio is not easy in post-crisis times. It required some outside-the-box approaches, so-called “unorthodox” policies from the Orbán Government. But it also required sacrifices from businesses and private citizens.

Source: Hungarian Central Statistical Office/Hungarian Outlook

The challenge now, of course, is to maintain the growth, and it looks like economic figures are going to allow the government to move forward on a plan to significantly decrease the bank levy in exchange for banks boosting lending. That would make it easier for businesses in Hungary to increase investment, adding to the record-high investment statistics, and contribute to further growth.

Hungary has had to work hard to prove itself, but those who are predicting a credit rating upgrade, may finally be right.