👉Hungary's Economy Continues to Roar thanks to Automotive Parts Exports

Although widely criticized for his authoritarian and populist style, Hungarian Prime Minister Viktor Orbán has pushed the economy to do better than many European countries. Hungary's economy remains one of the few bright spots in the European Union. Still, Prime Minister Viktor Orban's nationalist government is facing a backlash in the EU over its anti-immigration stance and its views on Muslims. More than 800,000 new jobs in the last nine years in a country of 10 million people, the second-highest GDP growth in 2019, and one of the lowest unemployment rates of Europe. So far, so good, but what are the challenges ahead, and can Hungary respond to them make a successful transition and be among the winners of the 4th industrial revolution? Welcome to The Atlantis Report. Hungary's economy is distinguishing itself from most of the economies of the European Union (EU). The country is suffering from a dearth of cheap labor - unemployment has fallen below 3.5%. The average wage in Hungary is €650 per month. The shortage of workers is pushing wages up, but employers say that if they rise too high, factories could be forced to move elsewhere. A reform that aimed to solve the problem by making existing workers work longer hours has been met with stiff resistance. According to Eurostat (European Commission agency), real GDP growth in 2018 was 5.1%, even better than 4.3% the previous year. Considering that the overall EU average was 2.6% (in Germany, 1.5%), Hungarian performance is better understood. Last November, the European Bank for Reconstruction and Development (EBRD) confirmed that the good momentum of Hungary's economy is set to continue, raising the forecast for GDP growth to 4.6%, somewhat less than the Hungarian government's forecast of 4.8%. But what drives such a successful economy? Paradoxically, despite the anti-pro-European proclamations of Orbán (Hungarian Prime Minister), economic growth is EU-branded. Hungary, in fact, relies heavily on the macroeconomic development of the euro area, since it is heavily dependent on the automotive sector and EU funding. Construction and services are also doing well, but growth in the construction sector is likely to decrease, also because VAT will be higher by the end of the year. Returning to the overall picture, the OECD has forecast that private consumption will continue to drive growth on the basis of strong earnings in real incomes. On the contrary, public investment will slow down, as will the EU structural funds. However, the country's economic growth will be supported by solid earnings in terms of employment and real wages, as well as by high consumer confidence. The weak currency helped exports In addition, Hungary has kept its currency (the forint), which has so far played in favor of the country. The Hungarian forint was one of the weakest currencies of 2019, which obviously helped the export sector. Of course, with the risk of rising inflation. Recent wage increases have been mitigated by a weaker currency, which has kept investors' interest in Hungary. The country remains one of the main bases for the production and supply of spare parts for Audi, BMW, Bosch, and other giants of the automotive industry. In 2017, the automotive sector accounted for 28.7% of Hungarian manufacturing production. Turning instead to the real estate sector, Eurostat data relating to the house price index in the second quarter of 2019, shows that the base value of 100 in 2015, passed to 162.46, the highest value in the whole EU. So is populist politics good for the economy? Even in Hungary, as in the rest of the world, politics has a considerable influence on the economy and financial markets. Is the political situation in the country about to change, and is the end of the Orbán era approaching? The local elections last October marked one of the most significant upheavals in recent years, as opposition parties achieved victories in key cities across the country (including in Budapest). However, analysts do not see any significant changes, especially in the economic and financial context, at least until the next parliamentary election in 2022. Viktor Orbán seems to be doing well with the country's economy, with his right hand blaming all the troubles in Brussels and his left hand aiming to raise funds and investments from the EU. An election poster displayed in many streets of Budapest reported a peremptory "Stop Brussels!", But some pranksters added, "but tell him to keep sending us the money!" — a shrewd summary of current Hungarian politics. The production of transport vehicles is considered one of the strengths of the Hungarian manufacturing industry, which in addition to supporting a supply chain of components and spare parts, continues to drive exports and promote employment. 30% of exports depend on the automotive sector, which employs 160,000 people and 4.5% of GDP produces. Since the early 90s, some foreign car manufacturers have invested in production and assembly plants: Volkswagen, Audi, which is the largest engine manufacturer in the Gyor plant, Suzuki, who owns a plant in Esztergom, General Motors Europe which produces engines. In the Szentgotthard plant. Daimler has been added since 2012 with the production of Mercedes models at the Kecskemet plant. From 2019 BMW will invest 1 billion euros in the construction of a plant in Debrecen for the production of conventional and electric cars. The other world-famous companies that have come to Hungary include Asahi Glass, Bosch, Delphi Calsonic, Denso, F Segura Hungaria Kft., Ibiden, Johnson Electric, Knorr-Bremse, Lear, Linamar, Modine, Takata, Visteon, Tata. In addition, some of the major tire companies - including Bridgestone, Hankook, Michelin, Apollo Tires - have set up factories in Hungary in the past two years. Hungarian SMEs have reached a level of development that allows them to be counted among the first or second level suppliers. The most important exporter is Audi Hungaria, which produces entirely for the foreign market. A test track for driverless cars is under construction in Zalaegerszeg, as the government's goal is to make the country the center of innovation for the automotive industry in Central Europe. According to the KSH Statistics Office, the Hungarian GDP grew by 4.9% . The main contributors were the services and the industrial sector. For the formation of GDP, services contributed 2.4%, construction for 0.8%, industry for 0.7% and agriculture for 0.2%. Compared to the third quarter of 2018, it grew by 1%. Examining the industrial sector, it emerges that the manufacturing sector recorded the greatest growth except for the transport sector. The greatest increase in services has occurred in wholesale and retail trade and in restaurant and accommodation services, which have recorded a 7.9% growth; information and communication services increased by 7.4%. Financial and insurance activities grew by 2.4%, and loans and deposits from non-financial corporations and families also increased; real estate activities recorded a 4.3% increase. The total added value of public administration, education, and health have decreased by 0.2%. The volume of investments has grown by 17% — the manufacturing sector records over ¼ of investments. In areas mainly with public financing, investments grew by 35% in the public administration and defense sector. In 2018, 98 new investments were initiated for a total value of 1.380 billion forints (Euro 4.3 billion). The government has granted non-refundable grants for 125 billion florins (approximately 400 million euros). Seventeen thousand new jobs created at an average gross wage 40% higher than in 2017. The first investor is Germany, with 28 projects. The automotive sector recorded the largest share of investments, with 36 projects for a total of 851 billion florins (€ 2.7 billion). Major brands include BMW, Jaguar, Land Rover, and Samsung SDI, SK Innovation, GS Yuasa for electromobility. The actual final consumption of households increased by 4.6%, that of government by 2.1% (actual final consumption increased by 3.7%). Both capital investment and gross fixed investment increased by 17%. Exports grew by 4.7% and imports by 7.1%. Actual final consumption contributed 2.6% to GDP growth. The balance of foreign trade, as a whole, slowed economic growth by 1.5%. Foreign trade has a surplus of 6 billion euros. The volume of exports increased by 4.3% (105 billion euros), and that of imports by 6.9% (99 billion euros). Exports of services increased by 2.0% and imports by 5.4% compared to 2017. The EU is the first outlet market for Hungarian exports (80%) and the first import market (74%). The inflation rate during 2018 was 2.8%, with food prices rising 4.2%, alcoholic beverages and tobacco 5.6%; electricity, gas, and other fuels of 1.4%. The Central Bank found that debt dropped to 70.9% of GDP from 73.4% in 2017. The deficit estimate is 2% of the government's expected 2.4%. In 2018 there was an increase of 11.3%, and real wages rose by 8.3%. The average unemployment rate was 3.7%. For 2020 it is estimated that the country's economy will continue to grow at a higher average than the European one. The rating agencies Fitch and Standard & Poor's revised the rating to BBB with a stable outlook. The European Commission expects GDP growth of 3.4% for the current year. On the inflation front, the Commission estimates 2.8% for this year. The 4.0 industrial strategy, called the Irinyi Plan (2016-2020), aims to increase industrial production from the current 24% to 30% by 2020 (7% annual growth). Seven sectors of intervention: defense industry, motor vehicles, specialized machinery, health, and tourism industry, food production, green economy, ICT. The government aims to generate long-term economic growth based on innovation, competitiveness, strengthening exports, and jobs. At the same time, he believes that it is necessary to reduce dependence on the automotive sector in favor of other sectors, in order to achieve more balanced growth. Fiscal policy aims to balance the budget. The first objective is the reduction of public debt and the share of debt in foreign currency, limiting international bond issues. In particular, as regards public debt, the objective is to reduce the share held by foreign investors and for this purpose, the new five-year MÁP + government bonds were put on the market, at an interest rate of 4% in the first year, and a gradual increase of 0.5 percentage points for each subsequent year up to 6% in the fifth year. These titles are reserved for Hungarian citizens only. Again on the tax front, the government continues with its tax reduction plan: corporate tax is 9%; from 1 July 2019, it is at 17.5%. To this amount can be added a contribution for professional training of 1.2%, always paid by the employer. The monetary policy implemented by the Central Bank has the objective of an inflation rate of 3.0%. The discount rate is 0.9%, and the Bank has taken some measures to push national banks to increase the volume of credit to the real economy. Returns on government debt securities are kept low, in order to lower long-term financing costs; the amount that commercial banks can deposit with the central bank has decreased, and the Interest Rate Swap has been converted from variable to fixed to contain the yields of longer-dated bonds; A mortgage bond purchase program was also launched, again to reduce long-term financing costs. According to the Governor, to achieve growth in western countries, the economy needs to change from "Labor Intensive" to "Capital Intensive." The Minister of Economy has drawn up a plan of the main objectives of economic policy in the medium term which are added to the Industry 4.0 plan and which are divided into 1) economic growth above the European average between 2018 and 2022; 2) presentation to Parliament of a budget balance bill by 2020; 3) debt / GDP percentage below 60% by 2022; 4) tax wedge: income taxes should be reduced below the regional level by 2022. Social contribution lowered to 11.5%; 5) as previously announced, the Minister reconfirmed the creation of 1 million jobs over ten years, of which between 250,000 and 300,000 by 2020; 6) increase in the number of people enrolled in-company training courses up to 75,000 units from the current 53,000 by 2022; 7) b bring at least three or four Hungarian companies such as Tunsgram (lighting), Ikarus (bus), and Medicor (medical instruments) into international circuits. There is no shortage of problems to solve, such as the demographic one, the lack of skilled labor, low added value of FDI, the high gap between GDP and GNP (4-5%), and low productivity, partly linked to the lack of manpower. There are a large difference in productivity between export-oriented firms, mainly foreign-owned and small domestic firms. The propensity of SMEs to innovate is low, and the use of digital technologies is also low. Regulatory barriers in services and retail trade and unpredictability of regulation hinder efficient reassignment of resources. Institutional deficiencies and inadequacy of human capital are other factors that limit productivity growth. This was The Atlantis Report. Please Like. Share. And Subscribe. Thank You.









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