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Introduction
Hungary has made the transition from a centrally
planned to a market economy, with a per capita income one-half
that of the Big Four European nations. Hungary continues to
demonstrate strong economic growth and to work toward accession
to the European Union in May 2004. The private sector accounts
for over 80% of GDP. Foreign ownership of and investment in
Hungarian firms are widespread, with cumulative foreign direct
investment totaling more than $23 billion since 1989. Hungarian
sovereign debt was upgraded in 2000 to the second-highest
rating among all the Central European transition economies.
Inflation has declined substantially, from 14% in 1998 to
4.7% in 2003; unemployment has persisted around the 6% level.
Germany is by far Hungary's largest economic partner. Short-term
issues include the reduction of the public sector deficit
to 3% in 2004 and avoiding unjustified increases in wages.
Economic situation
In 2003 the Hungarian
economy achieved a growth rate of 2.9%. Although this was
slightly behind that of the previous year, the growth rate
gradually started to pick up as of second quarter and in the
last quarter it already reached 3.5%. The interim acceleration
took place parallel with the European Union's recovery, thus
proving the Hungarian economy's close correlation with the
Western-European prosperity cycle. Nevertheless, the main
driving force of growth throughout last year - similar to
the previous year's situation - was consumption: according
to the detailed figures regarding the first three quarters,
the consumption expenditure of households increased in real
terms by 8.8%. Last year's 12.3% increase in the capital investment
in machine industry and the mid-year upturn of the processing
industry's investment activity played a key role - through
improved productivity and the expansion of export capacity
- in achieving a healthier growth structure.
Following the unfavourable figures experienced
in the first 6 months, working capital inflow accelerated
in the second half of the year, and thus direct foreign capital
investments in Hungary - in the form of share and ownership
holdings - exceeded previous year's level and reached almost
EUR 1.5 billion. The regional expansion of large Hungarian
companies has continued, which resulted in a record level
of working capital export in 2003, reaching EUR 1.4 billion.
General government deficit (net of local
governments) in 2003 reached HUF 1 054 billion. Although this
represented a considerable decrease compared to last year's
record deficit, but - even despite the cost-cutting measures
implemented during the year - it still exceeded the budgetary
estimate specified in the Public Finances Act by more than
25%. Last year's deficit in payment terms reached 5.6% of
GDP.
The external balance of the economy has
deteriorated last year. The annual deficit of foreign trade
product turnover was close to EUR 4.5 billion: in addition
to the drop in exports seen in the first six months - mainly
due to some large exporters' withdrawal during last year -
the dynamic expansion of consumer import, and subsequently
in the second half-year that of imports increasingly related
to investments played a decisive role in the deterioration
of the balance. Thanks to the recovery of exports experienced
as of mid-year, the foreign trade balance already showed an
improvement in Q4.
Annual average consumer inflation index
in 2003 dropped to 4.7%, however the disinflation trend which
has been present since mid-2001 came to a halt in the second
half of last year, and the 12-months' consumer price index
reached 5.7% by the year-end.
Last year gross industrial output increased
by 6.4%, which - compared to the previous year - represents
a significant expansion. The production dynamics trends during
the year show a spectacular industrial growth: while in the
first half-year growth rate was still around 4%, the same
index already reached two-digit numbers in the last months
of the year. The industrial boom is attributable to the over
10% increase in export sales, while domestic sales produced
a mere 1% growth. Following previous years' unfavourable tendencies
the last quarter of 2003 brought a considerable development
in terms of competitiveness. Due to the spectacular growth
in industrial outputs, the improvement of industrial productivity
exceeded the sector's gross nominal wage increase, which manifests
itself in the improvement of the specific labour costs index.
The almost 4.5% drop in unit labour costs expressed in Euro
signals that convergence of wages may also take place parallel
with regaining our competitive edge.
Unemployment rate in 2003 dropped from the
Q1's 6.4% to 5.5% by the end of the year, which is the lowest
level ever, moreover, this decrease was accompanied by a considerable
growth in working population. It is a positive development
in the labour market that the primary source of expanding
employment is the increased economic activity of working age
population: the return in part of the previously inactive
population to the labour market improves the economy's growth
potential through expanded workforce reserves.
Gross average wages continued to increase
last year too at a two-digit pace (the annual average was
12%), which was in part due to the continuing rapid salary
increase in the public sector, attributable to the prolonged
impact of the pay-rise effected primarily in September 2002.
The wage dynamics in the competitive sector showed a significant
slow-down compared to the previous year, but salary increases
still exceeded the level agreed upon during the reconciliation
process. In 2003 net real wages at national economy level
increased by 9.7%.
Statistics (The world Fact Book)
GDP: purchasing power parity - $134 billion (2002 est.)
GDP - real growth rate: 3.3% (2002 est.)
GDP - per capita: purchasing power parity
- $13,300 (2002 est.)
GDP - composition by sector:
agriculture: 4.1%
industry: 33.8%
services: 62.1% (2000 est.)
Inflation rate (consumer prices): 5.3% (2002
est.)
Labor force: 4.2 million (1997)
Labor force - by occupation: services 65%,
industry 27%, agriculture 8% (1996)
Unemployment rate: 5.8% (2002 est.)
Budget: revenues: $13 billion
expenditures: $14.4 billion, including capital
expenditures of $NA (2000 est.)
Industries:
mining, metallurgy, construction materials, processed foods,
textiles, chemicals (especially pharmaceuticals), motor vehicles
Industrial production growth rate: 3.1%
(2002 est.)
Electricity - production: 34.39 billion
kWh (2001)
Electricity - production by source:
fossil fuel: 60.1%
hydro: 0.5%
other: 0.3% (2001)
nuclear: 39%
Agriculture - products:
wheat, corn, sunflower seed, potatoes, sugar beets; pigs,
cattle, poultry, dairy products
Exports: $31.4 billion f.o.b. (2002 est.)
Exports - commodities: machinery and equipment
57.6%, other manufactures 31.0%, food products 7.5%, raw materials
1.9%, fuels and electricity 1.9% (2001)
Exports - partners:
Germany 34.3%, Austria 8.5%, Italy 5.5%, France 5.4%, US 4.9%,
UK 4.5% (2002)
Imports: $33.9 billion f.o.b. (2002 est.)
Imports - commodities:
machinery and equipment 51.6%, other manufactures 35.3%, fuels
and electricity 8.2%, food products 2.9%, raw materials 2.0%
(2001)
Imports - partners:
Germany 25.3%, Austria 7.7%, Italy 7.5%, Russia 6%, China
5%, France 5% (2002)
Debt - external: $31.5 billion (2002 est.)
Economic aid - recipient: ODA $250 million
(2000)
Currency: forint (HUF)
sources :
Gabriella Bicskei
Association of Hungarian Foundries
The World Factbook
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