% of GDP
Hungary was part of the polyglot Austro-Hungarian Empire, which collapsed during World War I. The country fell under communist rule following World War II. In 1956, a revolt and announced withdrawal from the Warsaw Pact were met with a massive military intervention by Moscow. In the more open GORBACHEV years, Hungary led the movement to dissolve the Warsaw Pact and steadily shifted toward multiparty democracy and a market-oriented economy. Following the collapse of the USSR in 1991, Hungary developed close political and economic ties to Western Europe. It joined NATO in 1999 and is a frontrunner in a future expansion of the
Update No: 080 - (01/01/04)
Further economic crisis
Yet another currency crisis has struck Hungary. The florint went into jitters on the exchanges during the summer and foreign investment was frightened off. Now it is happening again.
In early December the florint fell further, despite a 3% rise in interest rates. The economy is not faring too well, with a massive budget deficit and a host of other problems. Since September foreign bond investors have withdrawn nearly $700 million due to worries about the high budget deficit, reaching a record 9.6% of GDP, and the growing current account deficit.
The financial panic will abate. But the crisis threatens, not Hungary's entry into the EU, certain in May, but its entry into Euroland in 2008. Still there is a lot of time for things to be put right by then.
Preparing for the EU
The Hungarians are somewhat apprehensive at the prospect of joining the EU, due in May. It is by no means clear that the country may not be a net payer into the Brussels exchequer. Such was the non-committal response of Jurgen Kopper, the EU ambassador in Budapest.
Hungary is due 39.2 billion HUF for regional aid and 76 billion HUF under the CAP. But its arrangements to receive the inflows are not up to scratch, implied the ambassador. In agriculture the paying agency has been set up, but its administrative procedures were submitted to parliament only on November 4th. It is doubtful the agency can be ready in time for the deadline of May 1st.
As regards regional aid, the agency required to process payments from the structural and cohesion funds of the EU has not been fully set up. This endangers some 220 million Ecu in expected payments.
Hungary has still got things to do to comply with EU legislation. It needs to take action, not just on farm subsidies, but on hygiene standards at food-processing plants and rural development programmes.
Following the Irish lead
The government, composed of the ex-communists, led by premier Peter Medgyessy, is unpopular, as would probably be any government at the moment in Hungary. But despite lagging badly in the polls behind the opposition party, Fidesz, led by former prime minister, Viktor Orban, the government is not despairing. Medyessy has a plan.
He is convinced the devaluation of the florint is a blessing in disguise. Previously growth had been led by domestic consumption, not by exports. Now it can be the other way round.
Hungary's entry into the EU should give it an added attraction to foreign investors on top of the more competitive exchange-rate.
The Hungarians can see what EU membership can do for a country when they look at Ireland, which is about to assume the EU presidency, taking over from Italy in January. The Irish joined with the UK in 1973. Unlike the British, they have made a great success of membership, becoming 'The Celtic Tiger' in the process.
From being the poor relation back then, they now have a higher standard of living than the English. The multinationals came in droves to Ireland, English-speaking, with low wages at the time and a huge Diaspora in the US, the small and compact island was seen as an excellent base of operations for doing business throughout Europe. Two-thirds of its exports are made by the multinationals, while the Irish farmers have done well out of Brussels subsidies.
The Hungarians can hope to emulate the Irish and become the Magyar Tiger, indeed, are well on the way already. Budapest can aspire to be the natural capital of the region, more cosmopolitan than Prague and much younger and livelier than Vienna.
Suzuki to increase production capacity of Hungarian car factory
Seven hundred new jobs will be created because Suzuki is to expand its production capacity, this was announced at the government spokesman's briefing, Kossuth Radio has reported. The spokesman also announced that at the invitation of Vladimir Putin, Prime Minister, Peter Medgyessy, will visit St Petersburg for a one day private visit, whence he will travel to Brussels to meet leading politicians of the European Commission.
Vera Klemanovics reported that Suzuki is to expand its Hungarian capacity by an investment of 100 billions [presumably forints], as a result of which the number of Suzuki cars produced in the country will increase from the current 88,000 to 200,000 by 2006. The investment will create 7000 new jobs.
MKB clinches Konzumbank purchase agreement
Government representatives and Hungarian Foreign Trade Bank (MKB), a Bayerische Landesbank subsidiary, recently signed a contract on MKB's purchase of Konzumbank, Interfax News Agency reported.
MKB will pay a toal of HUF 10.8bn (41.879m Euro) for the bank and its headquarters. MKB was the only applicant in Konzumbank and its Budapest headquarters, owned by Tukory-Center Real Estate Trading Kft. MKB Chairman and CEO, Tamas Erdei, said that the price offered by the bank was a "good price," and pointed out that Konzumbank fits well into the bank's strategy. MKB plans to integrate Konzumbank into its operations completely in the short- to medium term, he added. Erdei stressed that MKB will continue to operate and manage Konzumbank's agricultural loan products, and that clients who took advantage of this loan will not feel any change due to the privatisation. With the acquisition, MKB's market share will rise to 13.6% in corporate loans and 12.3% in corporate deposits, while the market share in the segment of retail loans and deposit will reach 3.4% and 6.1% respectively. MKB's current branch network of 32 units will be expanded by Knozumbank's 30 branches. The closing of the transaction is expected to take place before the end of the year, once financial watchdog, PSZAF, and competition office GVH have approved the deal.
GE set to expand ESC in Budapest
General Electric (GE) will expand the company's European Service Centre in Budapest next year, the Hungarian daily 'Vilaggazdasag' reported recently, cited by Interfax News Agency. The centre currently employs several hundred people. According to plans, GE Medical Systems will start construction of its new development and production centre in 2003. The creation of the new facility will require investments to the value of "billions of forints," according to the Chairman of GE Hungary, Istvan Szini.
The European customer relation centre (also based in Hungry) has almost 300 employees, but the number of staff is likely to double during 2004, as GE will expand the tasks of the centre, the daily added.
MOL ahead of great future in gas business
There will be a "new world in the life of MOL" in the gas business as of January 1st 2004, CEO, Gyorgy Mosonyi, said, Interfax News Agency reported.
According to Mosonyi, the company's board of directors will soon examine the question of the future of MOL's three gas businesses - transmission, storage and trade.
In order to make a decision on the future of MOL's three gas businesses, which will operate as completely separate subsidiaries in 2004, the board will rely on a study of the market situation and strategic possibilities, Mosonyi was quoted as saying. "MOL now has most of the needed information at its disposal," he added. The CEO stressed that in any decision to bring partners into one of the gas business, the upstream mining operations are not on the table.
While the gas mining royalties will act as a cap on the profitability of MOL's domestic production of natural gas, this will be more than compensated by the fact that the "dual pricing system" for gas will disappear, Mosonyi noted.
The company expects a loss of about HUF2bn (some 7.755m Euro) on the gas business in the fourth quarter, bringing the total for the year to about HUF10bn. However, due to the HUF11bn profit on the sale of gas service providers realised in the third quarter, the operating profit of the gas segment will likely be slightly positive for the year, as Mosonyi noted.
MOL paid HUF6.7bn in supplementary gas mining fees in July-September, according to the company's recent report. Therefore, the supplementary royalty payments in the fourth quarter could be about double their third-quarter level - depending on the volume of gas extracted and the import market prices.
Hungarian premier expects 3bn euro EU funds annually for regional development
Hungary expects 3bn euro, that is 800bn forints, annually for the development of its road network and other infrastructure projects. The Hungarian prime minister said this after his talks in Brussels with leaders of the European Commission, Kossuth Radio has reported.
The radio's Zsuzsa Roka reported on Peter Medgyessy's talks: Peter Medgyessy visited Brussels to influence decisions, to meet the chairman and members of the European Commission. His meeting with Michel Barnier, responsible for regional policy, was made topical by the fact that negotiations are about to start about the EU's next budget valid from 2007.
After his talks with Michel Barnier, Peter Medgyessy considered that every one of Hungary's region could benefit from certain objectives of the regional policy, except the central Hungarian regions and Budapest. The head of government is going to discuss this with Budapest Mayor Gabor Demszky and after that, the metro deal could by signed.
Peter Medgyessy expects altogether 3bn euro annually as of 2007 from the structural funds of the community. This will provide a large economic scope of movement and in time, this can increase with the growth of the GDP, the prime minister added.
Peter Medgyessy said at the talks with Commissioner chief Romano Prodi that for Hungary the most promising element of the EU's expansion initiative is the Trieste-Kiev 5th Corridor, most of all. The Budapest government could win over the Russian leadership to participate in the giant investment scheme involving the section to built via Hungary, the prime minister mentioned in Brussels. Although Romano Prodi did not promise anything in reply, he said that he hoped that in two weeks time at the Brussels Union summit, when the expansion initiative will be submitted in detail, a favourable decision would be made for Hungary, too.
After his visit to the European Commission Peter Medgyessy told Hungarian journalists, that Hungary was hoping to get help from the European Union for other infrastructure investments, too, such as the expansion of the M0 motorway [ringroad around Budapest], the M43 motorway between Szeged and Nagylak [southern Hungary] the M7 to Nagykanizsa [western Hungary] and the M3 section to Nyiregyhaza [eastern Hungary] and also for the modernization of the railways between Budapest and Szekesfehervar
2003 budget approval pushes up GDP forecast
Hungary's consolidated state budget deficit is expected to come in at HUF920-930bn, or 4.9% of GDP this year, Finance Ministry Deputy State Secretary, Istvan Varfalvi, told reporters, Interfax News Agency reported.
The figure is up from the former unofficial target of 4.8% of GDP, or HUF900bn. The slight difference is due to a government-supported modification to budget laws, expected to be approved by parliament, which would make 13-month wages in the public sector payable before the end of the year, Varfalvi said. October's deficit was confirmed at HUF69.1bn.
The finance ministry also announced final October budget data, which were identical to preliminary figures released on November 5th. The consolidated deficit was thus HUF69.1bn in October, bringing the 10-month gap to HUF878.5bn. This is 5.6% higher that the official annual target of HUF832.2bn, or 4.5% of GDP.
Commenting on October budget developments, Varfalvi said that personal income tax revenues were behind the target and will also be lower than planned for the year as a whole. At the same time, VAT revenues exceeded plans, as did proceeds from the Simplified Enterprise Tax, although the latter constitutes a relatively minor item in the budget.
For November, the ministry expects a consolidated deficit of HUF230bn, plus or minus HUF20bn, Varfalvi was quoted as saying by Interfax. The large gap will be due to the disbursement of 13th month pensions, payments arising from a retroactive pension hike, as well as settling retroactive maternity benefit claims in line with a court decision earlier last year - the latter item will amount to some HUF27bn, as HUF6bn of the total HUF33bn claims was already paid in October.
In contrast, the ministry expects December to bring a sizeable surplus of around HUF180bn, mainly on the back of corporate tax payments. VAT refunds will also appear in January figures, not in December as previously, according to Varfalvi. Carfalvi stressed that the 2004 budget and as a result there will not be any one-off items raising December expenditures, in contrast with the practice of the past few years.
A downward trend in business confidence observed since spring 2002 has now stopped, and the latest survey of the Hungarian Chamber of Trade and Industry (MKIK) shows a slight recovery, MKIK President, Laszlo Parragh, announced recently, Interfax News Agency reported.
Although the October confidence index of about 0.125 is up from an all-time low of some 0.11 in April, it is still lower than the October 2002 figure of 0.15. The index is scored on a scale of -1 to 1, where 0 represents neutral expectations. Companies are more optimistic than earlier, but the figures still show a "fragile" situation, Parragh added. While the stock of export orders shows a modest rise, domestic orders are still decreasing slightly. Although Hungarian-owned companies showed the lowest confidence with an index slightly below 0.1, these firms were the most optimistic in the latest survey. Companies with majority foreign ownership show the highest level of confidence at 0.34, but their expectations are still rather negative
INVESTMENT BACKGROUND REPORTS
Our analysts and editorial staff have many years experience in analysing and reporting events in these nations. This knowledge is available in the form of geopolitical and/or economic country reports on any individual or grouping of countries. Such reports may be bespoke to the specification of clients or by access to one of our existing specialised reports.
For further information email:
Considering an investment or a trip to any newnation? First order our Investment Pack which will give you by e-mail the last three monthly newnation reports and the complete worldaudit democracy check for the low price of
US$12. The print-out would be a good companion to take with you. Having read it, you might even decide not to go!
To order please click here: