Hungary - Market OverviewHungary - Market Overview
Hungary, located in Central Eastern Europe with a population of 9.8 million, transitioned from a centrally planned economy to a market-based one since the fall of communism in 1989. It is a member of the OECD (1996), NATO (1999), the European Union (2004), and the Schengen Zone (2007). Per capita income is nearly two-thirds that of the EU-28 average and total GDP is $133 billion. Private sector activity accounts for more than 80% of GDP. Hungary boasts a strategic location in Europe, access to EU markets, a highly skilled and educated work-force, and a sound infrastructure which have led companies such as GE, Alcoa, Morgan Stanley, National Instruments, Microsoft, IBM and many others to locate facilities in the country, both in manufacturing and services. According to Uniworld, there are more than 400 wholly-owned U.S. companies in the country while Hungarian government statistics indicate there are more than 1,600 companies with some sort of U.S. affiliation, employing just under 100,000 Hungarians. In terms of employment, this makes the U.S. the second-largest investor in Hungary after Germany. Many of these companies find that Hungary’s geographic position in Central Europe also offers a strategic logistical hub within the region.
Foreign direct investment (FDI) in Hungary has helped modernize industries, create jobs, boost exports and spur economic growth. Hungary’s cumulative FDI stock since 1989 totals more than $80 billion. Key sectors include automotive, IT, electronics, logistics, and more recently Shared Service Centers. In order to stimulate additional foreign investment, at the start of 2017 the government lowered the corporate tax to 9% and labor tax to 22%, amongst the lowest rates in the European Union.
According to U.S. Department of Commerce data, U.S. merchandise exports to Hungary in 2016 totaled $1.84 billion, which was a 7% increase compared to 2015. Exports were led by machinery, electric machinery, vehicles, electronics, IT equipment, automotive components, industrial engines and other manufacturing technologies and supplies.
For an overview of the key industries for U.S. exports, please see Chapter 4, Leading Sectors for U.S. Export and Investment.
Hungary was heavily impacted by the 2008/2009 global financial crisis as well as by austerity measures and sectoral taxes introduced by the government in 2010. GDP annual growth rate was 3.4% in 2015, but dropped in 2016 to a growth rate of 2.2% (still slightly above the average of the EU-28) due to a drop in EU funds and resulting impact on the construction industry. GDP growth has bounced back and is expected to reach 3.5% in 2017 and 3.2% in 2018 according to the European Commission. However, analysts believe that European Union structural funds skew forecasting and that this is not an accurate reflection of economic activity. Hungarian exports, particularly to Germany and other neighboring countries, are substantial and the country has maintained a trade and current account surplus since the beginning of the crisis. The unemployment rate decreased significantly from 10.2% in 2013 to 4.4% at the end of June 2017, however, this improvement is also due to previous reforms of unemployment benefits that resulted in a higher number of public workers.
Although the government did manage to successfully decrease the 81% high debt to GDP ratio in 2011 to 74% by the end of 2016, it introduced several new taxes to continue deficit reduction, which mostly hit the banking, energy, retail and telecommunications sectors. The measures the government took to reduce debt were criticized by many, as they were short-term, one-off solutions and not the structural reforms needed for a fiscally more stable and sustainable budget. Since early 2016, multinationals have identified shortages of qualified labor, both white and blue collar, as the largest obstacle to investment in Hungary. In certain industries, such as media and retail, unpredictable, sector-specific tax and regulatory policies have favored national and government-linked companies. Additionally, persistent corruption and cronyism continue to plague the public sector. Since 2010, Hungary has dropped in Transparency International’s (TI) Corruption Perceptions Index, placing 24th out of 28 EU member states in 2016. Also in 2016, the government of Hungary withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance. In 2013, the three major credit rating agencies (Moody’s, S&P and Fitch) changed their long-term ratings on Hungarian bonds to BB/Ba1 and there has not been any significant improvement since. S&P currently rates Hungary as BBB-, Moody’s as Baa3, and Fitch as BBB- stable outlook.
Hungary maintains an open economy and its high-quality infrastructure and central location are features that make it an attractive destination for investment. Despite the many challenges that accompany the local business environment, Hungary remains an attractive market for U.S. investment and exports. Hungary’s strategic location in Europe, easy access to both EU and non-EU markets within and outside the Schengen zone, highly skilled and educated work-force, and sound infrastructure have led global companies such as GE, Alcoa, GM, National Instruments, Jabil, IBM, Lexmark and many others to locate manufacturing and service facilities here.
Top reasons for doing business in Hungary include:
- One of the fastest growing economies in the European Union
- Central location, considered to be the gateway to Central/Southeast Europe
- Well-educated and trained workforce
- Supply chain opportunities in automotive and electronics industries
- Government emphasis on innovation and knowledge-based technologies
Funding from the EU has also driven growth and will continue to do so. EU funds have been used for 63,000 projects to improve telecommunications, energy and highway infrastructure. As part of the National Development Plan (2014 - 2020), Hungary has allocated approximately EUR 28.6 billion in projects ranging from tourism and infrastructure development to healthcare and environment protection.Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
Hungary Trade Development and Promotion