- 16 Dec 2013 8:00 AM
I recall a time 11 years ago, in 2001, under the first Orbán Government when that was the case. Hungary’s economy was growing steadily at a rate above 4 percent, the debt-to-GDP ratio was at 52 percent (!), and the budget deficit hovered around a manageable 4 percent of GDP. Unemployment was down to 5.7 percent. Back then, they spoke of Hungary being among the first of the CEE group to join the EU and the common European currency, which had not yet been issued. As the data shows, those years were among the brightest economically for Hungary since the transition.
So what went wrong? A lot. The Socialist governments elected in 2002 and 2006 overspent and produced little or nothing to show for it. In 2006, Nouriel Roubini, a former economist in the Clinton White House, referred to these unhealthy tendencies saying “Hungary is really facing some serious problems. Hungary is an accident waiting to happen.” Unfortunately, he was right.
By 2006, according to Eurostat, the government deficit had ballooned to 9.4 percent. The gross public debt rose to 65.6 percent while GDP growth was falling. By the following year, 2007, while the global economy was still solid – EU economies were growing 3.2 percent on average and the CEE countries even better than that – Hungarian GDP had fallen to a negligible 0.1 percent. Unemployment rose to 7.5 percent in 2006 and reached double-digits, 10.5 percent, four years later. The financial crisis in 2008, struck a vulnerable and structurally broken economy. Hungary could not get financing from the markets and was forced to turn to the IMF in 2009 as GDP fell through the floor, contracting by -6.8 percent that year. By the second quarter of 2010, just as the current Government was stepping in, the debt-to-GDP ratio topped 85 percent.
Many forget that before Greece nearly went off the financial cliff, it was Hungary that was headed for the abyss. After years of mismanagement of the economy, the country was forced to choose between IMF bailout or the very real prospect of default.
Today, the economy is a far cry from what we enjoyed in 2001, but it’s quite clearly showing the early signs of recovery. Since 2010, public debt has been reduced, the fiscal deficit has been kept under the Maastricht threshold of 3 percent – the first time since Hungary joined the EU in 2004! – and GDP forecasts for 2014 predict the highest growth we’ve seen since 2007, even according to the European Commission, which is always a little bearish on the growth forecasts.
Since 2010, Hungary has accomplished a lot to restore stability and – according to the Eurostat data for Q3 – now enjoys one of the highest growth rates in the EU, tied for third with the UK behind Romania and Latvia. Still a lot of hard work ahead, but it’s a welcome sign of the progress we’ve made to regain that “star pupil” badge.
Read more of my posts on the Hungarian economy by clicking here.
Source: A Blog About Hungary
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