In today’s European Union, many Member States struggle to keep spending under control and hit the Maastricht targets, while producing economic growth and reducing unemployment. Once relegated to the back of the class in the remedial group of European economies that face perpetual excessive deficit procedure, the Hungarian economy has now moved to the front row.
The ambitious economic goals set by Prime Minister Orbán include demanding fiscal discipline to keep the budget deficit not only under the three-percent Maastricht threshold but low enough to reduce nominal state debt. It calls for GDP growth to increase from the current level to five percent in the long term. On the jobs front, the government has set a goal to create opportunities so that “everyone who wants to work, is able to.” The policies, once dismissed as unorthodox, have laid down solid foundations for the economy to stabilize and grow.
Last week, Frankfurter Allgemeine Zeitung wrote that even the international credit rating agencies are now recognizing Hungary’s recovery and performance and that since the government is planning a new package to boost the economy, Hungary, following Poland, will be one of the motors of the European economy. FAZ’s positive report is not unfounded considering the latest performance data.
In August, GDP growth came to 2.6 percent, beating analysts’ expectations for the period and made the government’s forecast of a 2.5 overall growth for 2016 look like a safe prediction. A record-high trade surplus and each sector contributing evenly to economic growth suggest a healthy growth structure.
In 2013, a nine-year Excessive Deficit Procedure against Hungary was lifted, and since then, the country has consistently outperformed the EU average on GDP growth. In 2014, a high 3.7 percent growth brought the country’s GDP back to the pre-crisis level and a 2.9 percent growth followed that in 2015.
The latest data on the actual state of this year’s budget is a record breaker. Never in the past one and a half decades has the central budget recorded such a low deficit after the first 7 months of the year. It is nearly half of what was recorded last year.
Financial discipline will add to the government’s goal to further reduce the debt-to-GDP ratio, which was down to 75.5 percent at the end of last year from 81 percent in 2010. If this year’s numbers continue to surprise, the plan budget surplus to reduce nominal debt doesn’t seem so unrealistic.
Employment records continue to be broken. For the first time since Hungary has tracked employment, the unemployment rate has fallen below five percent. Coming down from almost 12 percent in six years, that would be a considerable achievement for any Member State.
To further improve Hungary’s economic positions, a governmental cabinet, consisting of the ministries responsible for economic issues was set up before the summer break. Headed by Minister for National Economy Mihály Varga, the cabinet meets on a regular basis to set policy objectives to further economic growth.
Hungary has a lot of work yet to ensure continued growth and declining unemployment. But we share the optimism of the FAZ article and the growing confidence of the credit rating agencies that Hungary’s economy is moving up in the class.