One of the Hungarian Government’s key industrial development priorities is increasing the weight of the motor vehicle sector, including not only its role within the Hungarian economy but also the role it plays among exporters. In this paper, we aim to present the current state of Hungary’s motor vehicle manufacturing sector and evaluate it from a global perspective.
The below graphs of sales and output data of the industrial sector and the motor vehicle manufacturing sector well demonstrate the weight of these industries within the national economy. The first graph shows the rising output volume of the industrial sector, which posted more than 15 percent annual growth in the past six years. The chart also reveals that although domestic sales have increasingly boosted the sector’s performance, exports have remained the main growth engine. Although the share of motor vehicle manufacturers (see orange column) does not appear exceptionally large within the entire output of the national economy (see purple column), but the output volume is indeed sizable for a single manufacturing sub sector. The output volume of motor vehicle manufacturers reached 22 percent of total in 2014, well above the 16 percent figure in the pre-crisis year of 2008. The sub sector’s share has also increased relative to the manufacturing industry, from 20 percent six years ago to the recent 26 percent.
According to the latest labour report of the Hungarian Central Statistical Office (KSH), in Q1 2016 the number of people in employment was 4.3 million in Hungary, up by 145 thousand year-on-year. Thanks to the increase, the labour participation rate has reached the highest level in two decades, while the unemployment rate has fallen to less than one-third of the level in the aforementioned period.
The economic crisis had deeply shaken investor sentiment in Europe. This has led leaders of the European Union to the recognition that reversing this downward trend and re-igniting economic growth would require joint and coordinated efforts at a European level. The Commission’s action plan rests on three pillars: pro-growth structural reforms; promoting fiscal prudence to restore financial stability; jumpstarting investment and maintaining the pace of growth thus achieved. The blueprint for the practical realization of these priorities is the European Investment Plan, certain findings of which this short paper aims to highlight.
The SME sector and especially medium-sized companies play a key role in reviving economic and employment growth. The Economic Development and Innovation Operative Programme (EDIOP), which has prioritized the assistance of this segment, contains a larger number of refundable financial facilities aimed at SMEs than similar former blueprints. These are highly favourable financial instruments with unprecedented conditions that are partly financed from EU resources, and they enable Hungarian enterprises to fund a wide variety of projects with only 10-20 percent of own financial resources.
Fitch Ratings, one of the “big three” credit rating agencies, has restored the investment-grade rating of Hungarian government bonds. The key determinant behind the agency’s decision was Hungary’s current account surplus, but other factors, such as the forint conversion of forex loans, the self-financing programme of the National Bank of Hungary (MNB), the steady flow of EU funding as well as the diminishing stock of banks’ external debt also played a major role in the positive decision and in reducing the exposure of the country and the financial sector to external risks. The upgrade also proves that the Government-led economic restructuring since 2010 has been a success: the economy has recently seen modest but steady growth.
A multi-year negative trend in the construction and sales volume of residential properties has been turning positive, according to available data compiled by the Hungarian Central Statistical Office, Eurostat and the National Bank of Hungary. The property market usually reacts slowly to market changes and rebuilding capacities scaled down during a crisis is a lengthy process. However, the rising number of building permits, rising property price indices, a supportive government policy (incentives such as the Family Housing Allowance and lower VAT on the sale of new properties) and sound international macro-economic environment (low inflation, low interest rates) can maintain favourable processes also in the long term.
The Economic Survey of Hungary published last week by the OECD acknowledges the performance of the Hungarian economy in recent years. The study points out that favourable current account data and the significant amount of EU funds have been instrumental for positive growth data. Incoming EU funds and FDI have also spurred investment rate growth. The survey also highlights the fact that Hungary’s financial vulnerability has been reduced.
The systemic decline of oil prices since the autumn of 2013 has obviously shaken financial markets all over the world and led to diverse consequences. First, consolidation processes that followed the global economic crisis and falling consumer prices caused by oil market turbulences have pushed investors towards safer instruments, such as government securities. Second, while public finances have benefited from subsequent lower prices and lower interest rates, the private sector has not met with higher market demand. Third, while stock market indices have usually mirrored the turmoil triggered by oil market havoc, the BUX -- the leading index of the Budapest Stock Exchange – has proven to be an exception.Its gains have been remarkable not only from a regional but also from a global perspective, and they have not been limited only to recent months but they have been outstanding also over a multi-year time horizon. This good performance is a clear sign of steady Hungarian economic growth and the progress that the economy has made in mitigating structural vulnerabilities.
Corporate investment is a crucial factor of an economy as well as its development. With regard to the former, complementary investment has more weight, as it facilitates the maintenance of existing capacities and operations, instead of adding to development. Development is typically the result of companies’ expansion and technological development which lead, first, to quantitative and, second, to qualitative improvements.