- Area: 93 036 sq km
- Capital: Budapest
- Official language: Hungarian
- Currency: Hungarian forint; abbreviations: Ft, HUF; prevailing interest and currency rates
- Form of government: republic
- Population: 9 797 561
- International Airport: Budapest Ferihegy, BUD
- OECD member since: 1996
- EU member since: 1 May, 2004.
Hungary is situated in Central Europe, between latitudes 44° and 48° North and longitudes 16° and 23° E and occupies an area of 93 036 sq km. Neighbouring countries: Slovakia to the north, the Ukraine and Romania to the east, Serbia, Croatia and Slovenia to the south and southwest, and Austria to the west.
The majority of the landscape consists of plains and low mountains. The highest point in the country is the Kékes at 1 014 m. The two largest rivers, the Danube and the Tisza, are navigable. The Balaton, the largest lake in Central Europe, can also be found in Hungary. Natural treasures of the country include the arable land and the waterways, the latter including, in addition to a large number of rivers and lakes, a number of high-quality artesian springs and various types of thermal springs.
Hungary has a continental climate but is also influenced by the oceanic climate from the west and the Mediterranean climate from the south. Summers are generally warm and sunny with temperatures in the 25-30°C range. For a few weeks, daytime temperatures can reach around 35–38°C. Winters are cold with temperatures in the -10–0°C range. Spring and autumn are often short and usually wet.
The population of Hungary has been declining steadily since 2001. According to figures of 1 January 2015, the total population of Hungary is 9 797 561. Bringing the population decrease to a halt is a primary government objective. The age pyramid depicts an aging population.
Close to 20 percent of Hungarians live in Budapest and its suburbs. This concentration is mostly due to the capital’s primary role in the country’s higher education, public administration and economy, as well as the traffic infrastructure. In addition to the high concentration in Budapest, the number of people living in large and mid-size towns is also significant, and migration from small towns is typical.
In terms of ethnic composition, the vast majority of the population are Hungarian, but the peoples from neighbouring countries and those that settled in Hungary during previous centuries have strong minority representation. The following is a list of minorities from the most to the least populous Gypsies, Germans, Croats, Slovaks, Romanians, Ukrainians, Serbs and Slovenians.
After a centuries-long journey, Hungarian tribes settled in the Carpathian Basin in 9th century A.D. The following century witnessed the development of centralised leadership over the tribes. Pagan Hungarians were converted to Christianity under Stephen I, the first King of Hungary, a process that lasted for several decades. The foundation of the Hungarian state is traced back to the date when Stephen I was crowned with the headpiece received from the Pope of Rome.
Despite the devastation caused by the Mongol invasion, centralised power and a strong state were established in the Middle Ages. The nation-founding House of Árpád was succeeded by the Anjou kings, who raised Hungary to a great European power. In addition to the country’s political and economic roles in Europe, succeeding kings enhanced the importance of Hungary’s cultural life, which resulted in a flourishing state during the Renaissance only to be brought to an end by the Ottoman occupation.
By early Modern Times, Hungary’s political power had decreased, and with the Ottoman invasion its territory was broken up into three parts in 1541. The ensuing battle to recapture the country from the Turks turned the central area of the country into a wasteland. The Habsburgs ruling the western part of the country easily extended their influence over this central region previously occupied by the Turks and the Principality of Transylvania, a former vassal state of the Ottoman Empire in the east. Between the early 18th century and World War I, Hungary was part of the Habsburg Empire.
Hungary eventually regained its independence as a republic after World War I. The Peace Treaty of Trianon, signed on 4th June 1920, redefined state borders, as a result of which the country lost around two thirds of its pre-World War I territory and population. Between the peace treaty and World War II, Hungary was once again officially a kingdom, but was ruled by a governor.
In 1941, Hungary joined Germany in the Second World War with high hopes of regaining the territories it had been deprived of some two decades before. In 1944, the country was occupied by the Germans, who were defeated and replaced as the occupying force by the Soviet Red Army only to increase the material and human toll of the war.
The Paris Peace Treaty reinforced the state borders of the Treaty of Trianon. The post-war period of parliamentary democracy, lasting barely four years, ended in August of 1949 with the Soviet-backed Communist Party taking over control of the country and establishing a one-party system. In the first half of the 1950s, Hungary was changed into a Stalinist totalitarian regime against which the 1956 Revolution broke out under the leadership of workers and young people. After the revolution was defeated by the communists relying on the support of Soviet tanks, government control tightened, yet this proved to be relatively mild (“goulash communism”) compared to other countries in the Soviet-led communist bloc.
In the late 1980s, Soviet control began to slacken, paving the way for the change of political regime in 1989, with 23 October marking the birth of the new Republic of Hungary. The first democratic national and municipal elections took place in 1990. Complete democratic restructuring and stabilisation of the new institutional system went in parallel with a fundamental transformation of economic life.
As early as 1990, Hungary was striving for Euro–Atlantic integration, joining NATO in 1999, the European Union on 1 May 2004, and the Schengen Area in December 2007.
Since 1990, the Republic of Hungary has been based on a political system of Parliamentary democracy. Parliament is the highest body of popular representation. Members of Parliament are elected directly by the people every four years. Upon the recommendation of the President of the Republic, the Parliament elects the Prime Minister, who then forms the cabinet. Cabinet members are appointed by the President upon the recommendation of the Prime Minister. The President of the Republic is elected by Parliament for a period of 5 years.
The President’s duties are primarily diplomatic, but he also announces the date of a national election and his approval is necessary for bills passed by Parliament to be enacted.
The 15-member Supreme Court is an independent forum designated to study whether or not specific laws are in compliance with the constitution. Enacted in 1949 and amended in 1989 on the occasion of the democratic transformation, the constitution was replaced on 1 January 2012 with a new constitution, which reflects the European and the general international principles.
Hungary is divided into 19 counties and the capital representing a separate region for public administration purposes, and 7 regions for development and statistical purposes.
The Hungarian education system is divided into three levels (elementary, secondary and higher education),all three with some publicly owned and some privately owned institutions. Hungary joined the Bologna Process in 1999.
The sectoral structure of the Hungarian economy is mostly compatible with other countries at the same level of development.
The service sector accounts for slightly less than two-thirds of the GDP. Within the service sector, the private services (trade, tourism, finance and other economic services) are highly developed. Services, especially economic services, represent a sizeable portion of the country’s export. The transportation sector (with some companies owned by the state and others by private corporations) offers optimum conditions for transit traffic due to Hungary’s favourable geographical location. The state-run service sectors (health, education, public administration) failed to keep pace with the other service sectors and their fundamental transformation is therefore high on the political agenda.
The agricultural sector, for which Hungary has especially favourable climate conditions, represents approximately 4 percent of the country’s GDP. In line with international trends, the industrial sector accounts for around one quarter of the country’s GDP. Recently, primarily export-focused industries have been able to increase their output. These include the automotive industry, telecommunications and computer technology, while food and light industries have fallen back and the construction industry, as a result of the crisis, remains in a poor condition. The shortfall in the food industry is mostly attributed to the adverse conditions generated by Hungary’s accession to the European Union. However strong it may once have been, Hungary's light industry is now almost non-existent, as Hungary has also lost out to Southeast Asian export markets.
In 2017, the performance of the global economy was more favourable than expected. In the Eurozone, along with the reduction of political risks, a cyclical upswing has begun with the support of the continued expansive monetary policy. The reference interest rate has remained unchanged since March 2016, and the ECB continued its asset purchase programme. The major economies of Europe are dominated by an optimistic mood and the German economic indicators are at record high. Government spending increased at an accelerated pace (partly in relation to the activities related to refugees),investments increased and private consumption also picked up. Labour market trends continue to be favourable, employment, even if at a slower rate, has been further expanding, with a significant increase in incomes; all this boosts consumption. Exports, the traditional driving force of German growth, took advantage of the upturn in the global market economy, and grew by 6 per cent in the first half of the year. However, consumption also dynamised imports, which grew by more than 9 per cent and thus the net exports held back the growth. The German economy, expected to grow by 2.1 per cent, is also pulling along the economy of other EU Member States. The risks were mainly political. (Possible further terrorist attacks, uncertainty due to Brexit, the Catalan referendum).
The dynamism of emerging countries will continue in 2018. They are assisted by the higher energy and raw material prices, the improving global trade and the government’s economic policy in a number of countries. Although the growth rate is expected to slightly slowdown in China, India's economy will continue to accelerate. The situation of Turkey and Russia will continue to improve, and the major economies in Latin America will not fall back into the recession. The GDP growth of this group may reach 4.8 per cent, although the wars and civil war conflicts in the Middle East, on the Korean peninsula and the surrounding area as well as in Latin America continue to remain a geopolitical risk. Due to the above, we expect approximately the same growth rate in 2018 as in 2017, with lower risks.
For 2018, we project the same dynamism as in the previous year. Despite the favourable external economic situation imports are expected to rise more primarily as a result of the increasing investments. Among the internal demand factors consumption increases and the driving force of accumulation is weakening slightly. The consumption is also encouraged by the government’s fiscal and income policy through the increase of the lowest wages and family tax reliefs, wage increases in the public sector and pension increase above the projected inflation as well as the pension reform. Among the tense labour market conditions companies are forced to increase wages more but the increase in employment also involves a higher outflow in income. In the election year the government is also expected to expand in-kind benefits, while public consumption will continue to shrink with the reduction in the number of public employees and there orientation to the market. There is a dynamic growth in fixed asset development in the public sector, primarily due to the brought forward absorption of EU funds. Household real estate investments are also in the rise, and corporate investments are encouraged not only by the favourable external and internal economic conditions but also by the shortage of labour.
Drivers of growth
For 2018, we are forecasting 11 per cent increase in investment, on top of this year’s high base. We expect a faster rate in the transportation, warehousing, water, sewer and waste management sectors that are funded primarily from EU resources as well as in the energy sector and in real estate transactions. However, manufacturing, agricultural, commercial and construction investments are rising at a moderate pace. With the good economic outlook the favourable fiscal conditions, the implementation of previously postponed development projects, low interest rates, the reducing labour supply and the improving lending ability and willingness of the banks are other factors promoting investments. The drawdown of EU funds will have a greater role in development than before. In addition, the state subsidies available for major projects (increase of employment, strengthening competitiveness) and the accumulated corporate and household savings also help the implementation of investment projects.
In 2018, further significant wage increase is expected, although not as substantial as last year. The minimum wage increases by 8.2 per cent, while the wage minimum by 12 per cent, but the increasing labour shortages and the proximity of elections will likely lead to further wage increases. A 9 per cent wage increase is projected in the market and the public sectors and thus also across the national economy, which entails 6.3 per cent increase in real wages.
In 2018, employment growth is increasingly hampered by the increasing labour shortage. The government intention to apply further major cuts in public employment also indicates the saturation of the labour market: only HUF 225 billion is allocated in the budget for such purposes, which is HUF 100 billion less than before and can fund on average the public employment of 180 thousand people a month. The government expects an increasing number of public employees to be able to find jobs on the primary labour market due to the rising labour shortage, but the majority of them do not have enough professional knowledge and due to territorial disparities significant internal migration would also be required to achieve that goal. Taking these into consideration, the number of people employed is expected to reach an annual average of 4.48 million (60 per cent employment rate) with 190 thousand unemployed individuals, which equals 4.1 per cent unemployment rate.
In 2018, we do not expect any significant change in the external demand conditions compared to this year. Exports (calculated in EUR) may increase by up to 6 per cent, in which the share of vehicle-related products will remain dominant, so our foreign sales will continue to depend on the prosperity of the automotive industry. Import will be determined by investments and consumption, along with the imports needed for current production. The growth of imports may slow down compared to this year’s high base figure, but may still reach 8 per cent, therefore exceed export levels once more. The foreign trade balance surplus continues to decrease sharply: it is now only approximately 7.2 billion euros.
Balance of payments
In 2018 higher internal demand will continue to reduce the trade balance surplus, and may reduce the current account surplus to EUR 3.4 billion, i.e. 2.6 per cent of the GDP. However, the capital balance is further pumped by EU transfers, therefore external financing capacity can reach EUR 6.8 billion, 5.2 per cent of GDP. Although the high financing surplus for many years has improved external debt indicators and mitigated the country's vulnerability, it also means that the development of the Hungarian economy is unable to profit from the opportunities that a significant amount of EU funding would provide.
General government balance
In 2018, the general government deficit may account for 2.2 per cent of GDP under ESA 2010. However, considering that this year’s processes already provide considerable room for manoeuvre to the government, next year’s deficit is also unlikely to be close to the 2.4 per cent target. Ideally decisions may be made on measures affecting both the revenues and expenditures that may lead to favourable impacts on growth and the general government budget in the long run. The deficit may be reduced by better than expected economic conditions, government measures adopted in the rest of the year and an improvement in the debtor rating of the country, yet an increase in election related expenditure that does not support growth at all and any interruption in the pre-financing or receipt of EU funding could drive the deficit up.
The ratio of national debt to GDP may decline from 71.6 per cent shown at the end of 2017 to 70.3 per cent by the end of 2018.
Changes of consumer prices
In 2018, inflation will accelerate due to internal economic impacts. The year of election will continue to involve loose monetary fiscal and income policy, generating both employment and increasing demand and allowing for the recognition of rising expenses. Even with reducing carried forward price impacts we project consumer prices to rise by 2.5 per cent as an annual average and 2.9 per cent within the year, but it may be even higher as a result of any unexpected increase in imported inflation.
Changes in interest rates
While the American Fed switched to restrictions with rate increases and balance sheet reduction, the ECB continued its loose monetary policy in 2017 too. Despite the eased budget and stringer inflation, the MNB continued the easement in September: in order to reduce government securities returns and encourage banks to lend more, it reduced the rate on overnight deposits that drive the market interest rates to -0.15 per cent and gradually phased out its three-month deposit portfolio that generated a return equivalent to the base rate. Thus, the stagnating 0.9 per cent base rate totally lost its function. The interbank rates and government securities returns fell to an unprecedented low and due to inflation, which picked up during the year negative real interests developed on almost all financial investments and even on the short-term corporate loans. In 2018, the MNB continues to pursue its easement policy, as the inflation target is expected to be reached only by the middle of 2019.
Changes in exchange rates
In 2018, the factors determining the exchange rate of the forint will essentially remain unchanged. With its monetary policy the MNB is trying to move the assets of the banks to the government securities market and to inter-bank and customer lending, reducing the market interest rates. However, the now negative international market interest rates keep the assets denominated in HUF attractive and therefore the HUF exchange rate could muscle up slightly and we project 307 HUF/EUR rate as an annual average. As central bank management continues to be interested in a weak forint, it can be assumed that the euro will weaken to 310 by the last day of the year. The USD exchange rate may fall to 258 by the end of the year and have an average annual rate of 256 forints.
Performance of the main sectors
In 2018 the performance of the sector will continue to be dominated by the external demand, coming primarily from the EU Member States, more specifically the economic trends prevailing in Germany. We expect the growth of the EU countries and our major trade partner to pick up slightly. Thus, exports can expand at a faster pace, while domestic sales may be driven by higher investments and household consumption. That is why we project around 7 per cent dynamism for the industry, which is slightly higher than the figure last year.
In 2018 the driving forces of the sector will not change: the absorption of EU funds, the central government orders, partially funded by the EU, to be finally delivered during the month directly proceeding the elections as well as the previously postponed home construction to satisfy the demand. This latter area is also promoted by subsidies that are especially favourable for families with young children, the low interest rates, persistent increase in income and growing consumer trust. However, contrary to the previous year, the basis of comparison will be high in 2018, we project a falling growth rate in the sector and approximately 20 per cent expansion in the construction industry.
With the available assistance funds, investments picked up at the beginning of 2017 with approximately 30 per cent increase in volume in first six months on a yearly basis. As all calls of the 2014-2020 EU funding cycle have been announced, and many winners will be named from the end of the summer, the implementation of the projects will also accelerate. Throughout the year, due to the low base value, investments could expand by nearly 25 per cent.
The completed development projects and the investments under the Rural Development Programme funded by the EU are expected to give a boost to the agricultural output in 2018. This year can also favour pig farming plans due to favourable prices, advanced new sites and stringer production integration. Precision cultivation mode continues to spread in arable plant production and new technologies are being introduced in fruit production with an expansion of intensive plantations. Milk production capacity may be expanded by the targeted demand of cross-border markets. Plant production may rise by 4-5 per cent in volume, slaughter animal and meat production and dairy production by 2-3 per cent, therefore overall agricultural production can grow by 3-4 per cent. Income may only grow slightly, as most products do not have any new price raising factors. The stability of the existing agricultural capacities would require the renewal of the Hungarian processing industry in the medium-term. In domestic food consumption, only 1-2 per cent growth can be expected in 2018, which may slightly be exceeded by the increase in imports (2-3 per cent). If exports rise by 3 per cent, the foreign trade balance of the agricultural sector may be close to EUR 3 billion again. As EU funding available on applications increases, agricultural investments can be up by approximately 5 per cent.
Summary and conclusions
This year is characterised by contradictory processes. The dramatic decline in investments is partly offset by the boost in consumption, also encouraged by government measures, as a result of which the projected growth for this year is also higher than 2 per cent.
The dynamic increase in real wages, the retail repayments reduced as a result of the bailout packages and the reduced special banking tax gave a boost to lending, the lower interest rates also favour consumption but its growth generating impact is less durable than the impact of investments would be. The lower (or at least apparently lower) growth is accompanied by good balance indicators: the foreign trade and current account surpluses have reached record high figures, the budget deficit indicator is falling, the national debt rate has reduced and inflation remains low.
Meanwhile (although still mainly due to the public work scheme) employment is rising, unemployment is significantly falling. The upgrading of the country to investor category gives a slight boost to the attraction of financial investment and strengthens the Hungarian currency, making the financing of the national debt and private companies more favourable. However, there are also unfavourable processes behind the improvement of macroeconomic and balance indicators.
Growth has remained broad: employment growth is accompanied by worsening productivity. Despite the declining EU transfers, the large external financing surplus also reflects the lack of private investment. Companies continue to remain net savers rather than supporting economic growth with borrowing to expand. Very low inflation is not merit either because, apart from external deflation effects, it reflects weak internal demand, i.e. inadequate growth driving forces despite the loose fiscal and monetary policy. Although these contradictions were somewhat resolved in 2017, structural problems that continue to subdue growth remain.
With the availability of EU funds, investments are to growing, employment will increase and the unemployment rates will fall below 5 per cent. Consumption is rising even though at a lower rate than last year partly as a result of the relaxed budget and income policy before the elections and partly as a result of the wage increases forced in the tense labour market. Due to the rise in foreign market inflation and the upturn in domestic demand, inflation will rise lightly, but will still not reach the target set for the end of the year. However, the autonomous investments of the private sector are still below the convergence level. Despite a slight improvement in the external economic trends, the abundance of funds continues in the world and the Hungarian budget and monetary policy will both be encouraging. Developments are increasingly hindered by the growing labour shortage.
Although the improving condition of the banking sector extends the loan supply and the more active housing market and better income of households also drives loan demand, the saver position of the companies continues to remain despite the more favourable terms and conditions of loans. In addition to the continued massive external financing surplus of the Hungarian economy, it also contributes to the achievement of the budget deficit and continued reduction of the national debt, although a stronger growth potential would be the best factor in ensuring the durability of budget consolidation. The current contradictory processes primarily signify risks for the future.
Employment based extensive growth is hindered by the stronger structural pensions of the labour market, the shortage of adequately trained workforce in more and more areas, which trend continues to grow with emigration and the centralised as well as simplified production centred education. This is not helped by the public work scheme, as most of the people working within that do not get into the primary labour market.
Exploiting the expanding room for manoeuvre which is the result of cheaper financing, the government is likely to apply a loose budget and income policy to stimulate the economy, although its efficiency is deteriorated by two factors. The continued centralisation efforts, the anti-competitive treatment and the threat of nationalisation applied as a forced measure after making the operation of companies impossible continue to be deterrents for companies intending to invest and working capital investors. The desirable expansion of consumption is impeded by the fact that with tax reliefs, the government favours the high income earners who already made their consumption purchases. Problems arising from employment and capital are preserving the low-value-added, less competitive economic structure.
Summary forecast figures
|Inflation in developed countries (%)|
|Goods and services in world trade|
|Gross fixed capital formation|
|Net household savings|
|Net company savings|
|Number of employees, as per workforce survey, annual average (thousand persons)|
|4 352||4 400||4 480|
|Unemployment rate, annual avg.|
|Export (at current prices, EUR)|
|Import (at current prices, EUR)|
|Balance of foreign trade, million, EUR|
|9 725||8 570||7 220|
|Balance of current account, million EUR|
|6 967||4 200||3 400|
|External financing capacity, percentage of GDP|
|State budget deficit, percentage of GDP (ESA '95)|
|State debt, percentage of GDP|
|Inflation, annual avg. (%)|
|Inflation, year-end (%)|
|Prevailing national bank interest rate, year-end (%)|
|Yield of 3-month state bonds, year-end (%)|
|HUF/EUR exchange rate, year-end|
|HUF/USD exchange rate, year-end|
|Nominal GDP, billion HUF|
|35 420||38 006||40 552|
Source: Pénzügykutató Ltd., forecast
The Budapest Stock Exchange (BSE) is the venue for trading with shares of public companies limited by shares and registered in Hungary, securities issued by businesses, and Hungarian state and other securities. The BSE has four trading sections: equities, securities, derivatives and commodities. For more information on the BSE and BUX, its leading index, see the BSE website:
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The visa regulations of the Republic of Hungary are in compliance with the regulations and recommendations of the European Union and the Schengen Agreement. Hungary joined the Schengen area in December 2007.
Regarding Hungary’s Schengen membership, the following need to be highlighted:
- visas and residence permits issued by any member state of the Schengen area are valid in the Republic of Hungary, and vice versa
- visas issued by Hungarian legations abroad, and residence permits granted by Hungarian national authorities, are valid for the Schengen area as specified on the stamp of the visa issued in the member states: “ETATES SCHENGEN”, i.e. valid for all Schengen States.
The Schengen visa and entry regulations apply only for stays that do not exceed 90 days. For periods longer than 90 days, the visa regulations of the respective member states apply.
For more detailed information regarding entry and residence permits and the relevant procedures, a list of countries whose citizens can travel to Hungary without a visa, and special regulations on the citizens of non-EU countries, please visit the website of the Ministry of Foreign Affairs.
Hungary uses the metric system for units of measurements.
Hungarian date notation: year/month/day. Contrary to the Hungarian spelling rules, as from 1 January 2012, the food trade shall display the shelf-life of the products in the order of day/month/year in compliance with the regulations of the European Union.
Hungarian uses the comma as the decimal separator and the full stop as the thousand separator.
Hungary is in the Central European Time Zone (CET),which is one hour ahead of Greenwich Mean Time (GMT). The country uses the practice of daylight saving time, advancing clocks by one hour during the period from the last weekend in March to the last weekend of October.
Normal business hours:
- Private and public offices: 8 a.m. to 4 p.m., closed on Saturdays and Sundays
- Retail: 10 a.m. to 6 p.m. Monday to Friday, 9 a.m. to 1 p.m. on Saturdays
- Shopping centres, hypermarkets: 7 a.m. to 9 p.m., seven days a week
- Restaurants: 12 noon to 10 p.m.
The information above is not exhaustive and should only be considered as a guide because business hours may differ significantly in specific cases.
Public holidays in 2018:
- 1 January New Year’s Day
- 15 March National holiday
- 30 March Good Friday,
- 2 April Easter
- 1 May Labour Day
- 21 May Pentecost
- 20 August Commemoration of the founding of the Hungarian state
- 23 October Commemoration of the Revolution of 1956
- 1 November All Saints’ Day
- 24 December Christmas-Eve
- 25-26 December Christmas day and Boxing day
Distances between Budapest and some major European cities:
- Vienna, Austria: 243 km
- Frankfurt am Main, Germany: 964 km
- Rome, Italy: 1 225 km
- Paris, France: 1 448 km
- Prague, Czech Republic: 525 km
- Warsaw, Poland: 741 km
- Bucharest, Romania: 821 km
- Kiev, Ukraine: 1 107 km
- Amsterdam, Holland: 1 395 km