Hungary

Politics:

• Analysis

  Hungary politics: Quick View - Fidesz keeps poll lead as new opposition for

  Event

  The ruling centre-right Fidesz retained a comfortable lead in nationwide public opinion polls conducted in November, despite the formation in late October of a new opposition alliance.

  Analysis

  On average, Fidesz-Hungarian Civic Union (Fidesz) received the support of about 21% of the entire voting-age population, up from an average of 20% in October polls (a change that is within the margin of statistical error). Support for Fidesz has been relatively stable since early this year, although it is down by more than one-half from post-election highs in mid-2010.

  The opposition Hungarian Socialist Party (MSZP) on average polled 14% among the entire population, roughly the same as in recent months. Support for the far-right Jobbik averaged 9% in November, the same as in October but down from highs of as much as 11% in late 2011 and early 2012.

  Support for the Democratic Coalition (DK), an MSZP splinter group headed by a former prime minister, Ferenc Gyurcsany, has stabilised at about 2%. Poll numbers for the green-liberal Politics Can Be Different (LMP) have slipped just below 4% in November, down from peaks of almost 6% this past summer.

  Two polling firms have already started gauging the popularity of Together 2014, an open-ended opposition electoral alliance spearheaded by Gordon Bajnai, a socialist-backed prime minister in 2009-10. Research institutes Median and Tarki showed 10% and 7% support for the alliance, respectively, suggesting that it would comfortably qualify for parliamentary representation if elections were held today.

  The Median poll also provided a tentative glimpse into the composition of the voter base of Together 2014. According to Median's survey, previously passive or undecided voters appear to make up one-half of the party's support base, while the rest seem to have been lured mostly from the MSZP, and to a lesser extent from the LMP. Other polls also showed a drop in the number of undecided voters, a trend that could be partly explained by the presence of Together 2014.

  Whether Fidesz can repeat its election victory in 2014 will depend to a large extent on the willingness and ability of leftist opposition parties (now including Together 2014) to co-operate in fielding candidates; and on how each party can influence voter turnout, following the recent adoption of strict voter registration rules.

  December 14, 2012

• Background

  Hungary: Political forces at a glance

  Political outlook: Political forces at a glance

  Current government: Hungary is a parliamentary democracy, with members of parliament (MPs) elected to four-year terms under a system of proportional and direct representation. The centre-right Fidesz-Hungarian Civic Union (Fidesz) won a landslide victory in the most recent election, in April 2010, obtaining 262 of the 386 seats in parliament (with one more seat held by the Christian Democratic People's Party, which is affiliated with Fidesz). Viktor Orban, the leader of Fidesz, is the prime minister. The Hungarian Socialist Party (MSZP), which held power in 2002-10, has just 48 seats following the defection of ten members to the newly formed Democratic Coalition (DK) in October 2011. The far-right Jobbik holds 47 seats. Parliament elected a new president, Fisesz politician Janos Ader, to a five-year term in May 2012. Although a largely ceremonial position, the president has the power to veto legislation.

  Parliamentary forces
  	% of vote in	No. of seats in
  	election	parliament
  	2010	2010	2012
  Fidesz-Hungarian Civic Union	67.9	227	226
  Hungarian Socialist Party	15.3	59	48
  Jobbik	12.2	47	46
  Christian Democratic People's Partya	0.3	36	37
  Politics Can Be Different	4.2	16	15
  Democratic Coalitionb	-	-	10
  Independents	0.3	1	4
  a The Christian Democratic People's Party stood on a "joint party list" with Fidesz. b Formed in 2011.
  Source: National Election Office.

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  Next elections: The next parliamentary and municipal elections are scheduled to be held in 2014 and the next presidential election is scheduled for 2017.

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  June 01, 2012

• Structure

  Hungary: Political structure

  Official name

  Hungary

  Form of state

  Multiparty republic

  Legal system

  Based on a new constitution that entered into effect on January 1st 2012, replacing the constitution of 1949 (substantially altered in October 1989)

  National legislature

  Unicameral parliament of 386 members, of whom 176 are elected from single-member constituencies

  Electoral system

  Universal direct suffrage over the age of 18

  National elections

  April 2010 (parliamentary), and May 2012 (presidential); the next parliamentary and municipal elections are scheduled for 2014; the next presidential election is scheduled for 2017

  Head of state

  President; Janos Ader, elected to a five-year term by parliament on May 2nd 2012, following the resignation of Pal Schmitt

  National government

  A centre-right majority government, led by Viktor Orban and comprising Fidesz-Hungarian Civic Union and the Christian Democratic People's Party (KDNP). The government has 263 seats in parliament

  Main political parties

  Fidesz-Hungarian Civic Union (Fidesz); Hungarian Socialist Party (MSZP); Christian Democratic People's Party (KDNP); Jobbik; Democratic Coalition (DK); Politics Can Be Different (LMP)

  Key ministers

  Prime minister: Viktor Orban (Fidesz)

  Deputy prime minister & minister for public administration & justice: Tibor Navracsics (Fidesz)

  Deputy prime minister: Zsolt Semjen (KDNP)

  State secretary & head of the Prime Minister's Office: Janos Lazar (Fidesz)

  Agriculture: Sandor Fazekas (Fidesz)

  Defence: Csaba Hende (Fidesz)

  Foreign affairs: Janos Martonyi (Fidesz)

  Interior: Sandor Pinter (Fidesz)

  National development: Zsuzsanna Nemeth (Fidesz)

  National economy: Gyorgy Matolcsy (Fidesz)

  Human resources: Zoltan Balog (Fidesz)

  Central bank governor

  Andras Simor

  December 01, 2012

• Outlook

  Hungary: Key developments

  Outlook for 2013-17

  • The centre-right Fidesz-Hungarian Civic Union (Fidesz) has the strongest government mandate since the fall of communism, enabling it to pass or amend legislation without the need for political compromise.
  • Fidesz remains committed to its centralising and populist policies, despite clashes with the EU and the IMF. Despite recession and falling popularity, we expect Fidesz to remain in power after the election in 2014.
  • Hungary has requested a bail-out from the EU and the IMF. Following an eight-month delay, talks began on July 17th; a deal is unlikely before mid-2013, given Fidesz's reluctance to compromise.
  • The euro zone recession in 2012 will have a negative impact on Hungarian growth, and we estimate a contraction in real GDP of 1.4%. We forecast average annual real GDP growth of 1.9% per year in 2013-17.
  • Hungary's four fiscal consolidation packages are estimated to bring the budget deficit within the 3% of GDP limit in 2012. We forecast annual budget deficits averaging 3.7% of GDP in 2013-17.
  • Increases in value-added tax (VAT), new sector-specific taxes and food price rises amid a bad harvest will push inflation to an estimated average of 5.7% in 2012. Inflation is forecast to average 3.6% per year in 2013-17.
  • The forint is set to appreciate gradually against the euro from 2012, but will remain subject to volatility, given the country's high debt levels.

  Review

  • A poll published by Median shows a surge in support for a newly created opposition movement, Egyutt 2014 (Together 2014), led by a former prime minister, Gordon Bajnai.
  • In October the European Court of Justice (ECJ) ruled against a Fidesz-backed law reducing the retirement age of judges to 62. If Hungary fails to comply with the ruling, the ECJ could seek sanctions and fines against the country.
  • Lawmakers have proposed a controversial residency-for-investment programme targeting Chinese investors who buy and hold at least EUR250,000 (US$322,825) of special government bonds.
  • Hungary remains subject to the EU's excessive-deficit procedure, as the Commission expects deficits to exceed the 3% of GDP limit again in 2014.
  • The manufacturing purchasing managers' index fell to 49.9 in October, from 52.4 in September, indicating a contraction in economic activity.
  • Consumer price inflation fell to 6% year on year in October, from a four-year high of 6.6% year on year in September.

  December 01, 2012

Economy:

• Background

  Hungary: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	10.0	Population growth	-0.2
  GDP (US$ bn; market exchange rate)	139.7	Real GDP growth	-0.6
  GDP (US$ bn; purchasing power parity)	195.4b	Real domestic demand growth	-2.6
  GDP per head (US$; market exchange rate)	13,987	Inflation	5.4
  GDP per head (US$; purchasing power parity)	19,572b	Current-account balance (% of GDP)	-2.4
  Exchange rate Ft:US$ (av)	201.0	FDI inflows (% of GDP)	2.7
  a Actual. b Economist Intelligence Unit estimates.

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  Background: After 20 years of communist rule and state planning, in the 1960s Hungary embarked on a series of economic reforms aimed at developing a market-based system, but there was little political liberalisation and reforms flagged. Communist rule ended when free elections were held in March and April 1990. Consecutive reform-minded governments took power, taking Hungary into the EU in May 2004. The centre-right Fidesz-Hungarian Civic Union (Fidesz) secured an unprecedented two-thirds parliamentary majority at the parliamentary election in 2010.

  Political structure: Hungary is a multiparty democracy. The unicameral parliament has 386 members: 176 from single-member constituencies, 140 from regional lists and 70 from a national list. Members of parliament (MPs) are elected for four-year terms. The president, who is elected by parliament for a five-year term, has little real power and is largely a figurehead. The judiciary is nominally independent, but the executive exerts considerable influence and has limited the power of the Constitutional Court to rule on fiscal matters. A new constitution was enacted in January 2012.

  Policy issues: The government faces two broad policy challenges: consolidating the public finances and jump-starting economic growth. Public debt is among the highest in the EU, surpassing 80% of GDP in 2010 and 2011, which has put fiscal consolidation at the top of the government's policy priorities. Labour market reforms, aimed at increasing employment and boosting the labour force participation rate, are integral to the government's plans to arrest the current trajectory of slow growth and rising debt.

  Taxation: The rate of corporate tax is 19%. For companies with a tax base (profit before taxes) of less than Ft500m (US$2.5m), the rate of corporate tax falls to 10% with certain restrictions. Since 2011, personal incomes have been taxed at a flat rate of 16%. Rates of value-added tax (VAT) and compulsory social security contributions, including mandatory payments to private pension funds, are high. The VAT rate for most products and services is 27% (since January 2012).

  Foreign trade: Almost 80% of exports are directed to the EU. In 2010-11 the current account posted average surpluses of 1.4% of GDP, the first since the 1990s, owing to a sizeable trade surplus. A recovery in external demand, following the global financial crisis of 2008-09, bolstered exports, and ongoing weakness in domestic demand restrained imports.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & equipment	57.1	Machinery & equipment	47.0
  Manufactures	29.1	Manufactures	33.4
  Food, beverages & tobacco	7.2	Fuels & energy	12.3
  Raw materials	2.9	Food, beverages & tobacco	5.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	25.3	Germany	25.0
  Romania	5.8	Russia	8.8
  Austria	5.5	China	8.5
  Slovakia	5.5	Austria	6.3

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  December 01, 2012

• Structure

  Hungary: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  Hungary: Country outlook

  Hungary: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The centre-right Fidesz-Hungarian Civic Union (Fidesz) has the strongest mandate of any government since the end of communism. Fidesz holds 263 of the 386 seats in parliament. The government has pursued a populist and nationalist agenda that satisfies its domestic supporters with little regard for international opinion. In May 2012 Janos Ader was elected president despite protests from opposition parties at the appointment of a Fidesz politician to the largely ceremonial position.

  ELECTION WATCH: The next general election is scheduled for 2014. The Economist Intelligence Unit expects Fidesz to win, but with reduced support compared with 2010, reflecting the return to recession, and the implementation of unpopular austerity measures. As the incumbent party at the next election, Fidesz will struggle to evade responsibility if economic conditions fail to improve. For the remainder of its term, it will strain to balance voter expectations with the pursuit of sufficiently restrictive fiscal policies to regain international investor confidence.

  INTERNATIONAL RELATIONS: Fidesz's populist and authoritarian tendencies have led to tension with its EU partners, such as over the new constitution. In 2012 the EU launched legal proceedings against Hungary over several laws deemed to erode the independence of the judiciary and the national data protection office. In November 2012 the European Court of Justice (ECJ) upheld the EU's argument that the forced early retirement of judges was illegal. The two sides also clashed over the issue of central bank independence, although this has now been resolved.

  POLICY TRENDS: The government faces two challenges: reviving economic performance and consolidating the public finances. It eschewed outside help for the first part of its term, but in November 2011 it announced that it would seek a EUR15bn (US$21bn) three-year financing agreement with the IMF and the EU. The country's previous, EUR20bn loan programme with the EU and the IMF lapsed prematurely in 2010 amid disagreement over macroeconomic policy. Although talks on a new loan started on July 17th after Hungary addressed international concerns over central bank independence, the path to an agreement is unlikely to be smooth. The government is likely to come under pressure to reform several core policies that it has implemented, including the flat personal income tax of 16% implemented in 2011 and sector-specific taxes levied on energy, retail and telecoms between 2010 and end-2012. The economy minister has already signalled a willingness to abandon the financial transactions tax on the National Bank of Hungary (NBH, the central bank). The IMF is also likely to insist on structural reforms such as of the oversized public sector, of local and regional government, and of state-owned enterprises. If the government eventually agrees to the policy conditions, the IMF programme could support debt financing in the short term. However, long-term public debt sustainability remains a concern.

  ECONOMIC GROWTH: Real GDP growth reached 1.6% in 2011, supported by agricultural output and industrial exports, following an expansion of 1.3% in 2010. In the first half of 2012 real GDP contracted by 1% year on year (by 0.7% in the first quarter and 1.3% in the second quarter), owing to falling exports, construction and the drought-hit agricultural sector. We estimate that the euro zone, Hungary's main export market, will contract by 0.4% in 2012 and by a further 0.2% in 2013. Given the euro zone recession, fiscal consolidation, high unemployment and tight credit conditions, we estimate that real GDP will contract by 1.4% in 2012. Fiscal reform--alongside the repayment of foreign-currency loans, deferred when the Swiss franc (in which around 60% of Hungarian household debt is denominated) was at its strongest--are likely to be a drag on domestic demand in 2013. Combined with ongoing fiscal consolidation and sluggish external demand, this leads us to forecast meagre real GDP growth in 2013, of 0.3%. Although structural weaknesses will persist, domestic demand should return to growth in 2014, allowing real GDP growth to average 2.3% in 2014-17. The economy has underperformed since 2006, partly owing to the uncertainty created by the chronic budget deficit and high debt levels.

  INFLATION: The NBH targets annual inflation of 2-4%. Despite a commodity price shock at the start of 2011, inflation decelerated in 2011 to an annual average of 3.9%, owing to weak domestic demand and high unemployment. Annual inflation is estimated to rise to 5.7% in 2012, owing to value-added tax (VAT) and consumption tax increases in January, a new telecoms levy in June, and food price increases amid bad harvests. New taxes on financial transactions and insurance policies will put upward pressure on inflation in 2013, keeping inflation above the NBH's target band, at 4.7%. An expected gradual appreciation of the forint against the euro will help to contain inflation in the medium term. Domestic demand is expected to remain subdued amid fiscal consolidation and tight credit conditions. As a result, annual inflation is forecast to average 3.3% per year in 2014-17. However, any unexpected fiscal loosening or significant weakening of the currency would exert upward pressure on prices.

  EXCHANGE RATES: We expect the forint to appreciate gradually in nominal terms against the euro over the forecast period as implementation of fiscal reforms (and a possible new IMF agreement) bolsters investor confidence, and as economic activity strengthens from 2013 onwards. The robust balance-of-payments position will also lend support to the currency in the near term. Nevertheless, the forint remains sensitive to shifts in global risk appetite--as shown by its 21% depreciation against the euro between mid-2011 and January 2012--and to any perception of fiscal slippage, given the country's high debt levels. The forint has fluctuated against the euro since the start of 2012, strengthening amid expectation of a new IMF financing deal and weakening amid ongoing delays. Significant delays in the IMF deal and a worsening of the euro zone debt crisis would increase downward pressure on the forint, owing to Hungary's extensive financial and trade linkages with the bloc.

  EXTERNAL SECTOR: The current account registered a surplus of 1.5% of GDP in 2011 as strong export growth led to large surpluses on the trade and services balances. Despite the recession curtailing domestic demand, we estimate that the current account slipped back into deficit in 2012. The current account is forecast to run expanding deficits until 2017 as income debits increase and improving domestic demand shrinks the trade surplus.

  December 01, 2012

• Forecast

  Hungary: Country forecast summary

  Country forecast overview: Highlights

  • The centre-right Fidesz-Hungarian Civic Union (Fidesz) has the strongest mandate of any government since the fall of communism. The opposition remains fragmented, limiting its ability to influence policymaking. Despite falling popularity and recession, Fidesz is likely to be re-elected in 2014, although it may need a coalition partner.
  • Fidesz has been forced to backtrack on several controversial laws in order to start talks on an EU-IMF bail-out needed to ensure debt sustainability and investor confidence. However, talks have failed to gain momentum, given the government's reluctance to accept oversight of fiscal policies.
  • The Economist Intelligence Unit estimates the export-dependent economy to contract by 1.4% in 2012 as a result of the euro zone recession. Annual growth will return in 2013-17, averaging 1.9%, as new export capacity is put into place and domestic demand gradually recovers.
  • Hungary achieved a budget surplus in 2011 owing to the nationalisation of private pension assets. We expect only partial implementation of Fidesz's four fiscal consolidation packages. However, this should be sufficient to bring the budget deficit below 3% of GDP in 2012. A new IMF loan could boost the credibility of the plans, but is likely to require unpopular fiscal measures.
  • Pro-government members of the National Bank of Hungary (NBH, the central bank) narrowly voted in favour of interest rate cuts in August, September and October 2012. Annual inflation is estimated to have risen to 5.7% in 2012, owing to increases in value-added tax (VAT) and consumption taxes, a new telecommunications levy, and food price rises amid a bad harvest. We expect the pro-government members to push for further rate cuts.
  • The forint is expected to appreciate gradually against the euro in 2012-17, but will remain susceptible to shifts in risk appetite, given the potential for fiscal slippage and the country's large debt burden. Euro zone accession will not occur during the forecast period, owing to difficulties in meeting the Maastricht criteria and the waning appeal of the euro, given the euro zone debt crisis.
  • Despite the recession curtailing domestic demand, we expect the current account to slip into deficit in 2012, owing to weak foreign investment inflows. The current account is forecast to run expanding deficits until 2017, as income debits increase and improving domestic demand shrinks the trade surplus.

  

  December 01, 2012

View detailed map

Country Briefing

Total area

93,030 sq km

Population

9,986,000 (January 2011 official estimate)

Main towns

Population in '000, January 1st 2009 estimate

Budapest: 1,712

Debrecen: 206

Miskolc: 170

Szeged: 169

Pecs: 157

Gyor: 130

Nyiregyhaza: 118

Kecskemet: 111

Szekesfehervar: 102

Climate

Continental

Weather in Budapest (altitude 139 metres)

Hottest month, August, 17-28°C (average daily minimum and maximum); coldest month, January, minus 1-4°C; driest month, February, 22 mm average monthly rainfall; wettest month, June, 63 mm

Language

Magyar (Hungarian)

Weights and measures

Metric system. A cadastral yoke (1 acre = 0.7033 cadastral yokes) is used for measuring land

Currency

Forint (Ft); average exchange rates in 2011: Ft200.9:US$1, Ft279.2:€1

Fiscal year

January 1st-December 31st

Time

One hour ahead of GMT

Public holidays

January 1st (New Year's Day), March 15th (anniversary of the 1848 uprising), April 9th (Easter Monday), May 1st (Labour Day), May 28th (Whit Monday), August 20th (National Day-Feast of St Stephen), October 23rd(Republic Day), November 1st (All Saints' Day), December 24th, 25th and 26th (Christmas)

March 01, 2012