International Trade in Hungary

News Related to International Trade in Hungary

Business outline for Hungary

Main Industry Sectors

The agricultural sector, which was predominant in the country's economy for many years, now only represents slightly less than 4.5% of the GDP and employs about 4% of the active population. The main crops are cereals, fruits, vegetables and wine.

The industrial sector contributes to one-third of the country's GDP and is very open to foreign investors. Automobile and electronics sectors are the two main sectors given that they account for 30% of the country's exports and generate 15% of the GDP.

The services sector contributes nearly to two-thirds of the GDP.The global financial crisis had detrimantal effects on Hungarian industries that work on the external market but also on the national market where demand was reduced.

Economic Overview

Hit by the financial crisis head-on, the country was saved from banckruptcy by the International Monetary Fund. After experiencing a deep recession in 2009, the country returned to a timid growth in 2010, estimated at 0.6% of the GDP and driven essentially by exports.

The newly-formed Orban government announced a 29-point stimulus plan, which aimed to stimulate the economy and reduce the budget deficit, especially through taxing financial institutions (this controversy lead to the premature department of the IMF and the EC). An emergency series of exceptional fiscal and parafiscal measures was also quickly passed, essentially affecting the energy, telecommunications and food distribution sectors.

The economic crisis has worsened the employment situation: according to estimations, in 2010 the unemployment rate increased to 10.8%.

FDI in Figures

Hungary has the highest stock of foreign direct investments (FDI) in Central and Eastern Europe. The country was severely hit by the financial crisis and the FDI fluxes, which have very much decreased, have only been recovering slowly.

During the recent years, Hungary benefitted from a change in the direction of the FDIs, which went from low value textile and food industry sectors to the production of luxury vehicles, renewable energy systems, luxury tourism and information technologies.

The country's strengths include: a tax system favorable to businesses, its geographic location as a bridgehead between Eastern and Western Europe.

FDI Government Measures

Attracting foreign investment is a priority for the Hungarian government. The Ministry of Economic Affairs established the Hungarian Investment and Trade Development Agency (ITDH) in 1993, and this agency continues to help companies looking to make major investments in the country. ITDH has set up a €śone-stop-shop€? service for potential large investors to maintain a competitive environment and attract multinational companies.

In the context of the international crisis, the state has implemented measures to maintain the country's appeal: special loans and guarantees programs to compensate for the difficulties of banks in granting loans, the improvement of the administrative situation and the reduction of formalities and the facititated acquisition of building permits. Additionally, the exchange rate has made Hungary less expensive than before, whereas productivity which was already high, has remained at the same level. Because of this, a number of international companies have maintained their investments in the country and have outsourced entire departments such as accounting or call centres.

Country Strong Points

- Hungary is the most advanced country in Central Europe in terms of reforms;
- Its financial system is one of the most well developed in the region;
- Its infrastructures, its work force and the framework of its regulations are of high quality;
- Integration in the EU, reinforces its political and economic stability and the support of large international organisations reduces the effects of the crisis.

Country Weak Points

- The situation of public finances is still in decline and the state debt is at a high level;
- Foreign accounts are largely and persistently unbalanced;
- If we are to consider its openness, the country is dependent on the economic situation of its main EU trade partners;
- The covering of financing needs depends partly on a volatile capital. Level of currency reserves is relatively low;
- The population has called for loans in foreign currency and the inflation which has followed the crisis has made these loans difficult to repay for the Hungarian borrowers;
- Banks have suffered great losses from the financial crisis due to debt repurchase and speculative investments;
- The currency has lost its value since the financial crisis.

Foreign Trade Overview

The Hungarian economy is very open, trade representing roughly 160% of the GDP.

The trade balance is traditionally a deficit. However, as an effect of the global recession, the volume of trade has decreased and due to the fall in imports being quicker than the increase in exports, the trade balance became positive.

The European Union is by far Hungary's biggest economic partner (Germany and Russia in the lead), followed by China.