HUNGARY

BILATERAL ECONOMIC REPORT (July 2006) 

 

1. ECONOMIC ENVIRONMENT

Hungary is one of Europe's fastest-growing and most open economies. The transition from a centrally planned economy to a fully functioning market economy had been completed successfully and Hungary became a member of the EU on the 1st of May, 2004.

Privatisation is nearly complete, only a few companies have remained state-owned (e.g. MALÉV Hungarian Airlines, Hungarian Railways). MALÉV and MAHART Hungarian Shipping Co. will likely be privatised as well as the former US Airforce base in Taszár is expected to be sold in 2006. (For further information on privatisation and opportunities please visit www.kvi.hu or www.apvrt.hu ).

 

This year’s economic development will be substantially dominated by political factors. The ruling coalition won the national elections in April, 2006. As a result, radical reforms are expected, with a major focus on the following areas:

* With the objective to create a “cheaper state” improvements on the operations of the public administration are expected;

* Far-reaching reforms in the healthcare sector as well as in the field of education;

* determined efforts to improve the equilibrium in order to be able to meet the Maastricht criteria (total deficit is expected to reach 6.5-7% of GDP in contrast to the planned 5%).

 

Local government elections are planned for September, 2006.

1.2. Key economic indicators

A.

 

	2001	2002	2003	2004	2005 forec.	2006 forec.
GDP millions of euro	57873.7	69621.6	73538.3	81115.3	87842	93128.0

Source: eurostat

 

B.

 

	2001	2002	2003	2004
GDP  (millions of euro)	57873.7	69621.6	73538.3	81115.3
Of which (%):
industry	26.7	26.3	27.1	27.1
construction	5.2	5.7	5.3	5.3
agriculture, forestry, hunting	5	4.3	4	5.2
services	62.8	63.5	63.4	62.1

 

 

 

FORECAST FOR 2005 and 2006 (previous year=100)

 

Source: Hungarian Central Statistic Office, GKI Economic Research Institute of Hungary

Investments: With about USD 55.44 billion FDI (Foreign Direct Investment) since 1989, Hungary has been a major destination for FDI in Central Europe. More than 2 billions of USD came from Israeli investors (incl. TEVA Pharmaceuticals, CAPRICE and MAGIC), the major part of which was targeted at industrial plants and real estate Investments rose about 10% in 2005 and it is expected to remain buoyant in 2006, with a growth rate of 8%, the minimum. EU supported investment projects will pick up in the areas of environmental protection, competitiveness, agriculture and education. (For further information on investment incentives in Hungary please visit www.itd.hu. For further information on EU funds please visit www.euoldal.hu/palyazatok.php , available only in Hungarian).

 

1.3. The economy by sectors

1.3.1. Industry

The industry (manufacturing: 89.8%; electricity, gas, water supply: 9.7%; mining: 0.5%) underwent a strong expansion and now accounts for almost 30% of the GDP. Hungary's industrial production grew by 7.4% in 2004 which level was basically maintained in 2005. A 8,5% growth is expected in 2006.

1.3.2. Agriculture

Though Hungary used to be considered as an agrarian country, by the beginning of the new Millennium the size of the agricultural sector was significantly reduced and accounted for 4.3% of the GDP in 2001. Agricultural employment accounted for 6.2% of total employment in 2002. According to statistical data (May, 2002),  83% of the country’s 9.3 million hectares total land area represents agricultural areas, of which about 63% is under cultivation.

As a member country, the Common Agricultural Policy has been applied in Hungary. The sector has received substantial amount of subsidies, including EU funds. (For further information please visit www.avop.hu).

In 2005 agricultural production decreased by 10% compared to previous year. Crop production declined by 4-5%, animal husbandry dropped by more than 20%. Agricultural production will remain flat in 2006.

1.3.3. Services

The service sector plays an important role in the economy, now it accounts for almost 2/3 of the total output. In 2005 the GDP contribution of the service sector increased by 3.9% and is expected to at a similar rate in 2006 as well.

2. FOREIGN TRADE

2.1. Key Figures

Exports (in million USD value at frontier parity): 28 091 (2000), 30 497 (2001), 34 336 (2002), 43 007 (2003), 55 468 (2004), 61 864 ( 2005), 15 976 (J-M 2006)

Exports - commodities: machinery and vehicles (60.9%), manufactured products (28.06%), food products ( 5.5%)

Exports-partners in 2005: EU (76,3%) out of which Germany (cca.30%), Austria (cca 6%), Italy (cca. 5%). Non-EU European countries (14%)

Imports (in million USD, value at frontier parity): 32 079 (2000), 33 681 (2001), 37 611 (2002), 47 674 (2003), 60 249 (2004), 65 522(2005) , 16 754 (J-M 2006)

Imports - commodities: machinery and vehicles (50.88 %), manufactured products (33.5%), fuels and electricity (10,2%) (2005)

Imports – partners in 2005: EU (67,8%) out of which Germany (cca 28%, Austria (cca 6%), Other countries: Russia (6.7%), China (5.7%). The shares of the Czech Rep. and Poland are dynamically growing. Non-EU European countries (12,7%).

 

 

2.2. Israel-Hungary

Bilateral Trade Figures

In mill. USD (Value at frontier parity)	2000	2001	2002	2003	2004	2005
Export from Hungary	57	88	81	100	156	168
Import from Israel	71	93	68	76	84	88

Source: Central Bureau of Statistics, Hungary, http://www.ksh.hu)

 

Commodity Structure of bilateral trade

Trade relations between Israel and Hungary resumed with the re-establishment of diplomatic relations in 1989. After Hungary’s accession to the EU on the 1^st of May 2004, the Free Trade Area Agreement between Hungary and Israel was abolished and the Agreement on Economic Co-Operation was signed in Tel-Aviv, on the 28^th of September 2005.

From a completely insignificant volume of trade before 1989, the bilateral trade reached 240.4 million USD in 2004. The main export commodity groups from Israel to Hungary are: machinery (mainly electrical equipment) (26%), basic metals (22%), chemical products (mainly pharmaceuticals) (19%), precious stones and pearls (11%) and rubber and plastic products (6.5%). Big exporters from Israel include Comverse, Teva Pharmaceuticals and Iscar Ltd. (cutting tools).

The main import commodity groups from Hungary to Israel are chemical products (40.5%), machinery (28%), rubber and plastics (9%) and food and agricultural products (10%). Big Hungarian exporters include TVK Co. Ltd. (exporters of plastic granulate), Nitrokémia 2000 Rt (exporters of chemicals) and MKM Ltd. (electrical cables).

3. AREAS/FIELDS FOR ECONOMIC CO-OPERATION

Hungary has an export-driven economy and the priority sectors determined by the Hungarian Government are the ones producing higher added value products and/or are regarded as knowlegde-intensive. The government is committed to create new jobs. The government supports the development of environmentally friendly technologies.

3.1. Telecommunications

The telecommunications sector has been the star performer of the past few years and electronic parts manufacturing, telecommunications, vehicle electronics and the computer industry are expected to be the best performers in the near future. There are several international companies present on the Hungarian market (e.g. Ericsson, Nokia, Siemens)

Basic services dominate the sectors but high value-added services are expanding dynamically. The potentials of bundled cable and phone services are substantial and still increasing.

The extension of broadband internet services is accelerating. The number of broadband internet access points will be further increased. By the end of 2006 every settlement in Hungary will be connected to the network. The establishment of the information society including e-Government and e-Health and the promotion of e-trade are high priorities and have received substantial financial support.

IT Security, wireless technologies have played an important role. The privatization of Antenna Hungarian has recently been completed (75% of the shares+1 share are now owned by Swisscom), and the new majority shareholder is planning to digitalize the terrestrial system with an investment of USD 54 million until the end of 2009.

IT projects are co-financed by the EU as well. The "Support of Business Content Development for SMEs" allocates USD 2.9 million for the development of digital content, regional, secrtorial and business portals and e-market.

Useful links: www.ivsz.hu (Association of IT Companies), www.it-business.hu.

3.2. Construction/Infrastructure

As part of the National Development Programme, Hungary’s spending on the improvement of the infrastructure have been substantial. In addition to further motorway constructions, decentralisation, the regional development has become a priority area. The renovation of roads is underway to establish an easier access to the small settlements. The growth rate of the construction industry was 16,6% in 2005, driven by  motorway construction. A further growth of 8% is expected in 2006 

With an investment of USD 25 million, the modernisation of road 8 between Székesfehérvár is underway. Local municipalities have developed plans for improving local public transport services and have received financial support to implement them.

Industrial parks, logistics centres are under development, the role of intermodal centers (railway, road and river hubs) is increasing.The government encourages companies to establish their regional head offices in Hungary.

3.3. Biotechnology

Hungary possesses an advanced pharmaceutical and biotechnology sector. In addition to the country’s advantageous location in CEE, this sector is supported by R&D carried out at pharmaceutical companies, there is growing number of SMS biotech companies, therefore Hungary is an ideal destination of potential investments in the biotechnology sector. The Hungarian government is strongly committed to support the development of the biotechnology sector and has pursued a strategy helping Hungary become one of the top 10s EU states in Biotechnology by 2010. (For further information on the biotech sector please visit www.hungarianbiotech.org)

3.4. R&D and innovation