Hungary Country Brief
Introduction/overview
The Republic of Hungary is a landlocked country in Central Europe bordered by Slovakia to the north, Austria and Slovenia to the west, Croatia and Serbia to the south, and Romania and Ukraine to the east and north-east. The population of Hungary is approximately 10 million. The capital is Budapest.
Hungarians celebrate their national or State day on 20 August each year, which is known in Hungary as the Day of the Foundation of the State of Hungary and St Stephen's Day, after Hungary's first King. Hungary also celebrates 23 October as a national day commemorating the outbreak of the 1956 Uprising and the proclamation of the Hungarian Republic in 1989, and 15 March, commemorating the 1848-49 Revolution and War of Independence.
Political Overview
Hungary has a democratically-elected, unicameral parliament, the National Assembly. In the 2006 parliamentary elections, the Hungarian Socialist Party (MSZP) won 190 of 386 seats and its coalition partner, the Free Democrats (SZDSZ), won 20. The main opposition party, Fidesz (Alliance of Young Democrats-Hungarian Civic Union), won 164 seats on a joint list with the Christian Democrats (KDNP). The Hungarian Democratic Forum (MDF) won 11 seats, and there was one independent MP. This was the first time a Hungarian Government had been re-elected since the fall of communism in 1989.
On 30 April 2008, the MSZP/SZDSZ Coalition Government broke up over disagreements on some economic and social policy reforms. The MSZP, under Prime Minister Gyurcsány's leadership, continued as a minority Government, with parliamentary support from the SZDSZ guaranteeing it a majority in the National Assembly. In March 2009, Mr Gyurcsány announced his resignation and, with parliamentary support from the MSZP and SZDSZ, a new Government was installed on 14 April with Mr Gordon Bajnai, who had been Minister for National Development and Economy in the previous Government, as Prime Minister. Mr Bajnai announced that his Government would concentrate on addressing the problems facing Hungary in the economic and financial sectors, which have been greatly exacerbated by the global financial crisis. He appointed a Cabinet consisting of some members of the former Government and several non-Party ‘expert' Ministers, especially in the key economic portfolios of Finance, National Development and Economy, and in Foreign Affairs. National Parliamentary elections are held every four years; the next are due to be held in the northern spring 2010.
The President of the Republic of Hungary, elected by the Parliament every five years, has a largely non-political role. The President does, however, have the right to send proposed legislation back to Parliament for reconsideration, or to the Constitutional Court for a review of its constitutionality. The current President, Dr László Sólyom, took office in August 2005.
Hungary joined the Organisation for Economic Cooperation and Development (OECD) in 1996, NATO in 1999 and the European Union in 2004. Hungary is also a member of the EU's visa-free zone, the Schengen Area, which it joined in December 2007.
Economic Overview
Hungary has been one of the most advanced new EU-accession market economies in Central and Eastern Europe, with the private sector accounting for approximately 75 per cent of GDP. The economy has been extensively liberalised through privatisation, foreign investment and the introduction of comprehensive commercial laws. Further reforms are planned. A high degree of integration with the EU market makes Hungary an attractive trade and investment partner. Key reasons why foreign investors choose Hungary are the quality of its workforce, its excellent infrastructure, its central geographic location and relatively low costs. In recent years, Hungary's heavy taxation regime and the absence of essential administrative reforms have significantly impacted on its business environment, although it still remains a major recipient of foreign direct investment. Hungary is progressively adopting broader EU policies, for example in its commitment to promote renewable energy sources.
The Hungarian economy is closely tied to the fortunes of the leading Eurozone economies, especially Germany. More than 77 per cent of Hungary's exports go to EU countries, primarily Germany, Austria, France and Italy. Russia is also an important trading partner, supplying most of Hungary's natural gas needs and other energy and mineral resources.
Currently, Hungary is experiencing extremely difficult economic conditions. An unsustainable budget deficit forced the introduction of severe government spending restrictions in 2006 and this led to a drop in economic growth and consumer and business confidence. In early September 2006, Prime Minister Gyurcsány introduced the European Monetary Union Convergence Plan, a series of austerity measures and economic reforms designed to reduce the budget deficit and facilitate Hungary's eventual entry into the Eurozone. The Hungarian Government has delayed setting a date for the adoption of the Euro until reforms have been completed but most observers do not expect Hungary to enter the Eurozone before 2012-2014.
The onset of the Global Economic Crisis compounded Hungary’s economic problems. In October 2008 Hungary had to turn to international financial institutions for help to restore investors' confidence in the country's economy. As a result the IMF, the EU and the World Bank concluded a Stand-by Agreement with the country and provided a loan of approximately EUR 20 billion. Prime Minister Bajnai has announced a set of economic reforms, including reductions in the tax burden on both employers and employees, cuts in some social security benefits, and the introduction of a property tax. The personal income tax structure will change significantly, putting 95% of all taxpayers into the lowest tax bracket (17%). The 2010 budget was presented in the National Assembly in November and has passed its first reading; the final, third vote on the budget will take place in Parliament in the end of November 2009. It estimates that Hungary’s GDP will contract by 6.7% on 2009 and by 0.9% in 2010, before returning to good growth in 2011. GDP growth in 2008 was 0.6%. The budget provides for substantial public spending cuts in public transportation and local government, but public safety and healthcare will see a rise in spending. The budget deficit for 2010 is an ambitious 3.8%. Unemployment in Hungary rose to just over 10% in October 2009. Inflation in 2008 was a relatively high 6.1%. In the first quarter of 2009 this declined to 3% but increased to 3.8% in the second quarter of 2009. The latest forecast is for 4 - 4.5% inflation for the whole year. The Hungarian Forint has seen significant ups and down in the past year. In September 2008 the Forint to Euro exchange rate was 238 to one and this plummeted to an historic low of 316 to one in March 2009. By September 2009 it had stabilised around 270 to the Euro. (One Australian Dollar is worth 168.56 Forints as of 10 November).
Bilateral Relationship
Hungary and Australia enjoy friendly, co-operative relations with strong people to people links flowing from the large numbers of Hungarians who migrated to Australia in the twentieth century, especially following the 1956 Uprising against the Soviet occupation of Hungary. At the time of the 2006 Census, there were 67,625 people in Australia of Hungarian ancestry. Hungarian-Australians have been active in the fields of business, academia, politics and the arts and count amongst their number well-known Australians such as the former NSW Premier, Mr Nick Greiner AC, businessman Mr Frank Lowy AC, Executive Chairman and co-founder of the Westfield Group, artist Ms Judy Cassab CBE AO, and SBS sports commentator, Mr Les Murray AM.
Australia established full diplomatic relations with Hungary in 1972 and both countries have resident diplomatic representation.
Although not frequent, high level visits between Australia and Hungary have served to develop bilateral relations. The Minister for Foreign Affairs, The Hon Stephen Smith MP, visited Hungary in July 2009. Australia's former Minister for Veterans' Affairs, the Hon Bruce Billson MP, represented Australia at the official commemorations of the fiftieth anniversary of the 1956 Uprising in October 2006. The Hon Alexander Downer MP, then Minister for Foreign Affairs, visited Hungary in September 2005. In March 2003, the then Minister for Communications, Information Technology and the Arts, Senator the Hon Richard Alston, visited Hungary. The State Secretary in the Hungarian Ministry for Foreign Affairs, Mr László Várkonyi, visited Australia in July 2009 for high-level consultations.
The President of Hungary, Dr László Sólyom, visited Australia in September-October 2009 and parliamentary visits have taken place regularly. The First Deputy Speaker of the Hungarian Parliament, Mr László Mandur visited Australia in November 2009. The parliamentary floor leader of the opposition Fidesz Party, Dr Tibor Navracsics visited in August 2009. Dr Ibolya Dávid, leader of the minor opposition party, the Hungarian Democratic Forum, visited Australia in November 2004. The Speaker of the Hungarian Parliament, Dr Katalin Szili, visited Australia in November 2002. From Australia, a study group of the Trade Sub-committee of the Joint Standing Committee on Foreign Affairs, Defence and Trade visited Budapest in April 2003 as part of its inquiry into Australia's trade and investment relations with Central European countries. In May 2007, a delegation of the Queensland State Parliament visited Budapest.
Bilateral agreements between Australia and Hungary include treaties on Mutual Assistance in Criminal Matters and Extradition (1997) and an agreement on Cooperation in the Peaceful Uses of Nuclear Energy and the Transfer of Nuclear Material (2002). Negotiations towards a bilateral Social Security Agreement commenced in July 2009.
Bilateral Economic and Trade Relationship
Since Hungary's EU accession in 2004, increasing numbers of Australian businesses have been exploring Hungary's potential as a base for operations in the EU, and especially in the Central/Eastern European region. The total volume of merchandise trade remains modest. Total two-way merchandise trade in 2008 was valued at $434 million, with Australia an importer of Hungarian telecom equipment and parts ($122 million), motor vehicles ($41 million) and computers ($37 million). Major Australian exports to Hungary include optical fibres and fibre bundles ($4 million) and transmission shafts and parts ($2 million).
Both countries have an interest in cooperation in the education sector. There were 1,148 enrolments by Hungarian nationals in Australian education institutions in 2008, with vocational education one of the most attractive choices. Increased interest in higher and post-graduate education is expected. Opportunities exist for increased collaboration in research and institutional linkages.
Several Australian companies are active in the energy sector in Hungary (see below), including uranium prospecting, clean energy technologies and renewable energy production. Infrastructure (Transport and Public Works) and Services, including franchising, continue to offer attractive opportunities.
The two countries' respective positions in international commercial supply chains, especially in sectors such as motor vehicle manufacturing, energy and resources exploitation and general engineering, present opportunities for further growth in trade and investment.
Australia's economic relations with Hungary are facilitated by a bilateral Double Taxation Agreement and an Investment Promotion and Protection Agreement.
Trade Successes
Australian companies with investment interests in Hungary include the Macquarie Group, AMP Capital Investors, QBE-Atlasz Insurance, Goodman Logistics, Adina Apartment Hotels, WildHorse Energy, Green Rock Energy and others. Cochlear Limited is active in Hungary and other countries in the Central European region, providing hearing implants. Future opportunities to develop trade and investment have been identified in infrastructure, government-related services (particularly health and e-government), consumer goods, food and beverages, computer and telecommunications software and services, building and construction technologies and education services. Hungary's EU accession also offers opportunities for Australian business in areas such as environmental technologies and solutions.
Last reviewed: 10 November 2009