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Significant Elements of the Hungarian Business Environment

25.06.2018
Stable GDP growth prognosis Growth is expected in all major industries Central location, good infrastructure, qualified human capital at a reasonable cost With 9 % Hungary has one of the lowest flat-rate corporate taxes of the EU In 2017 import from Hungary to Finland was 386,9 million euros and export from Finland to Hungary was 259,1 million euros Challenges regarding changes in regulatory and tax environment as well as administrative burdens weigh on investor confidence in Hungary Hungary's dependency on EU funds is high. Hungary's EU funding is estimated to be cut significantly in the next Multiannual Financial Framework.

Economic Indicators

-The prognosis for GDP growth ranks around 4 % for 2018. Economic growth is mainly driven by private consumption and rebounding investment. Growth for 2018 and 2019 will be bolstered by a pickup in investments, aided by European Union funded projects and added capacity in the manufacturing sector. Higher household consumption is helped by an upturn in retail lending and positive labor market developments. 
-The European Commission has noted the benefit to growth of government-initiated measures of reducing corporate tax and payroll tax, while raising the minimum wage over several years starting in 2017.
-The prognosis for public budget balance (% of GDP) is approximately -2,3 %. It is below 3 % for the sixth consecutive year, with the government debt (currently 73,6 %) on a declining path.
-The unemployment rate is in a constant decline, prognosis around 4 % or lower.
-European Union Member Countries are major trading partners to Hungary. In December 2017 the share of EU countries in imports was 76% and in exports 77%.

​Market Opportunities

-Finland and Finnish companies have a good reputation in Hungary. Finns and Hungarians have a special relationship due to language kinship.
-Construction of the 12,7 billion euro enlargement project of the Paks nuclear plant has been planned to start in 2018. The project is approximately two years late from schedule.
-Potential market opportunities lie inter alia in cleantech, infrastructure of district heating, and e-mobility. Startup scene is also showing potential. 
-Hungary aims at increasing the sustainability of the public transport systems and decreasing energy consumption of public buildings.
-There is a growing demand for energy efficiency in the agricultural sector, modernization of agriculture, development of rural areas and enhancing green growth.
-Real estate business and the construction sector are growing considerably.
-Digitalization is a cross-industry issue with potential for Finnish companies.
-The educational system of Finland has always been highly valued by Hungarian teachers, and Hungary poses possibilities for Finnish education export as there is intent to modernize the public education system in Hungary. 
-In 2017 import from Hungary to Finland was 386,9 million euros and export from Finland to Hungary was 259,1 million euros.

Business Environment and the ease of doing business

-With 9 % Hungary has the lowest flat-rate corporate tax of the EU and one of the lowest in Europe. Hungary also offers significant incentives to foreign companies investing in Hungary.
-Qualified human capital at a reasonable cost is available although shortage of manpower is growing and occurring in many fields.
-Central location with excellent infrastructure. Hungary has the nr. 1 road density and quality of motorways in the Central and Eastern European region.
-Budapest is one of the most attractive cities for foreign direct investment (FDI) in Central and Eastern Europe (fDi Magazine ranking 2018).
-Hungary is a growing Central and Eastern European hub for example in car manufacturing and global service centers. In addition, as for R&D centers in Budapest, Nokia has one of the biggest R&D Centers with over 2000 engineers and researchers.
-Factors adversely affecting the business environment and corporate investment are linked particularly to weakness in institutional performance and governance.
-According to the 2018 European Commission Country Report, frequent changes in the regulatory and tax environment are estimated as one of the biggest problems in doing business in Hungary. Complex and frequently changing regulation have deterred business sector investment and productivity growth. Regardless of progress, there is scope for further reduction of administrative burdens. 
-Despite the declining trend of sector-specific taxes – some of which remain highly distortive – they tend to complicate the tax system and weaken investor confidence.
-The European Commission has also called on Hungary to strengthen transparency and public procurement competition and to improve the anti-corruption framework. Transparency International ranks Hungary at 66th place out of 180 countries on the 2017 Corruption Perception Index. It came down 9 points from 57th place in 2016.

The Hungarian Investment Promotion Agency (HIPA) provides professional assistance and support to those interested in investing in Hungary.


Links:
The Hungarian Investment Promotion Agency 
https://hipa.hu/main
Commission's Country Report Hungary 2018
https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-hungary-en.pdf
Recommendation for a Council Recommendation on the 2018 National Reform Programme of Hungary and delivering a Council opinion on the 2018 Convergence Programme of Hungary
https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-specific-recommendation-commission-recommendation-hungary-en.pdf


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