The United Kingdom last week appointed Theresa May as its new prime minister and, following a rough stretch for British politics and financial markets, the FTSE 100 soon rebounded and a heavily discounted British pound regained value. Throughout the post-Brexit turbulence, key indicators in the Hungarian economy have remained decidedly positive.
Hungary is reporting record amounts of foreign direct investment, reaching a record 1.33 billion EUR in the first six months of 2016 with investments from the United States outpacing those from Germany for the first time in many years. And the forecast for the rest of 2016 gives more reason to be upbeat about Hungary.
Moody’s agrees. The ratings agency upgraded Hungary’s banking sector early this month, and we have historic lows reported for Hungary’s unemployment rate in the first half of 2016 as Hungary reaps returns on tough policy decisions the government has taken over the last six years. Bucking the supposed accepted wisdom on belt-tightening and austerity measures and pursuing instead our so-called “unorthodox” measures, the Orbán Government has succeeded in turning the growing debt-to-GDP trend around, retired loans to the IMF, brought the fiscal deficit down well under the 3 percent Maastricht threshold and encouraged steady GDP growth.
This is no accident.
With low corporate tax, a well-educated work force, competitive wages, a deregulated labor market and a reputation for competition and innovation, Hungary joins the other economies of central and eastern Europe building the engine of growth for Europe. While other European economies struggle to find their way back to a growth path, Hungary has consistently put more money in its citizens’ pockets, with disposable income trickling into a growing retail sector. It has rationalized taxation to favor a work-based economy over a welfare economy and added many new forms of support to families, most recently with a program to support home ownership.
Compare that to the economies of the older Member States. France regularly records anemic growth, and sustains a sclerotic welfare system that appears impossible to save. Or consider Italy, with some 350 billion EUR in bad debts in its banking sector alone and possibly the next site of a Greece-like financial crisis. When it comes to economic indicators and performance, special treatment from European institutions toward these countries seems only to delay responsible decision-making, with socialist governments counting on miracle turn-arounds out of nowhere.
Hungary has come a long way since 2010, when Prime Minister Viktor Orbán and the Fidesz-KDNP alliance took office after eight years of Socialist mismanagement. Back in 2008, Hungary had been forced to take an emergency bailout from the IMF soon after the global credit crisis to avoid a default scenario like in Iceland or Greece, but today Hungary is back on stride. The tremors following the Brexit referendum were a test, but Hungary’s economy is proving healthy and resilient again.
Of course, the UK’s decision to leave is painful. The EU is losing the second largest EU economy. Many of us in Hungary understand some of the British criticisms of the EU, but we remain committed to the Europe Union, particularly a more competitive EU based on the respect of Member States. We were not happy to see the UK vote to leave, but we’re determined that the EU has better days ahead, and despite the shocks that rippled through Europe following the Brexit result, trust in Hungary’s economic recovery over the past half-decade seems unshaken. Responsible decision-making is paying off.