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Hungarian Recovery Remains Shaky

Published: March 31, 2014; 23:39 · (Vindobona)

Last year, Hungary´s government successfully managed the economic turnaround. Nevertheless, Hungary´s growth remains artificial.

Hungarian Recovery Remains Shaky / Picture: © Vindobona.org

Next weekend, Hungary will hold elections. Despite the weak economic performance and a high level of political frustration, Hungary´s government will stay in office.

Four years ago, Fidesz has gained a two-thirds majority in the parliament, which is a unique situation in whole Europe. After 2010, the economic and political frame conditions have changed fundamentally. The centre-right government has introduced a number of controversial tax and labor market reforms. Due to the unpredictable economic policy, Hungary has become a critical market in view of foreign investors.

According to economists, Hungary´s GDP will grow by 2.0% this year. However, Hungary´s economic recovery is barely relying upon domestic consumption.

Hungarian households, by contrast, do not benefit from the upswing. In the last four years, the average real income of Hungarian workers was down by 6%. The country´s economic turnaround is mainly based on the exporting industrial sector instead. Moreover, Hungary´s government began to compensate private investments by more public investments. After 2008, the share of private investments in terms of GDP fell from 20% to 13%. In the same period, public investments grew from 3% to 6% of GDP. Without the nationalization of the pension funds, Hungary´s government would have been unable to increase public investments at this level.

In the next few years, economic frame conditions will remain difficult in Hungary, according to economists. Nevertheless most Hungarians do not regard the opposition as real alternative to the centre-right government. As a result, the governing Fidesz party is expected to gain more than 50% of the votes.

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