Does Hungary belong at the top of the region (again)? According to the government in Budapest it does. According to the recent research of the German Chamber of Foreign Trade (AHK), German managers gave better scores to other countries.
AHK has been researching the general economic situation and investment conditions in the countries of Central and Eastern Europe (CEE) and South-East Europe for the past nine years. About 1,000-1,500 local companies have been asked in total.
German investors focus on Central-Eastern Europe
Many German companies decided to enter the former “Eastern bloc” in the 1990s, with the result that by the new millennium at the latest Latin America and Asia were no longer the most important destinations for the investors of the largest European economies. The global economic crisis shook up these relations, however, and not even China’s long shadow can change the fact that Western and Eastern Europe are depending on each other.
The CEE has an enormous importance for Germany not only because of its geographic situation. The capital stock invested there reached almost 8% of the total German capital invested abroad, according to the data of the German National Bank, and more than 10% of all German exports are to this region.
According to the definition of AHK, 16 countries form the CEE region, and they either entered the EU in 2004 (except Malta and Cyprus) or are in the Balkans. So Hungary is competing for the attention of German companies against its neighbours except Austria, including the Visegrád states, the Baltic states, recent EU members Bulgaria and Croatia, and even Albania, Macedonia and Kosovo. This is the same league that Hungary once topped, when it was commonly known as the “happiest barrack” of the Eastern bloc.
Hungary’s competitors strengthened during the crisis
The economic situation and the expectations of investors are of course not independent of the macroeconomic indicators in each country. This is why the AHK examined the status of economic growth in the region first. The winners of this comparison were Kosovo followed by Albania and Poland, with a real economic output 20-25% higher than in 2007.
We may disregard the first two countries but Poland is Hungary’s direct competitor. The Polish managed to survive the financial crisis without recession surely due to their large domestic market (40 million inhabitants) – the economy grew by 1.5% even in 2009. Slovakia and Romania were also strengthened in the crisis; their economies are substantially larger than in 2007, the year before it hit.
Hungary on the contrary is not even back to the starting point before the crisis. Only Slovenia, Latvia and Croatia are doing worse. Concerning the chances of the present year, the predicted growth in Hungary is only midfield because the same growth trend can be recorded in the Czech Republic, Slovakia and Romania as well.
On the other hand, the Baltic countries and Poland should be growing over 3%, so the Orbán government has to take some measures to enhance the economy if they want to keep up with the regional competition concerning these very important results.
Hungary is not the only one with a small budget deficit
Budapest also likes to boast about the small budget deficit. It is a fact that six countries in the region, most of all Slovenia, have more serious problems with their balance. Most of the region, however, is fulfilling the relevant Maastricht criteria, with Bosnia, Bulgaria and the Baltics doing better than Hungary, leaving it only at rank number six.
In terms of current account balance Hungary can finally earn a top place: the achieved balance surplus around 3% of Gross Domestic Product (GDP) is the second-best in the region. Only Slovenia could achieve a twice as good balance, and on the other hand five countries such as Montenegro and Serbia have serious difficulties.
In terms of macroeconomic indicators Hungary is in the upper midfield. Though what is the result of the (subjective) judgement of the economic situation by German managers? In general they judge the conjuncture and the expected conditions in a positive way, which is coming of course from the present more relaxed mood in Germany.
Fifteen per cent of managers say the situation in their country is not positive any more, the same number as in 2008. The number of pessimists is at its lowest since 2008, namely 42%. The optimists are dominant only in Latvia, Estonia and Poland; in Hungary their 11% is clearly outnumbered by 39% pessimists.
Hungary ranks sixth for economic perspective
In terms of economic perspective Hungary fell back to sixth place, with 35% of managers having a positive judgment and 13% staying sceptical in 2014. The research in this area showed that the questioned leaders see the situation of their own branch and primarily the situation of their own company brighter than the situation of the whole country.
This is also the case in Hungary; however, since in other CEE countries the German managers gave extremely exuberant judgments about their own perspectives, Hungary fell back to the midfield.
The judgment of revenue development is more specific; in this view Hungary scored around the regional average of 55% positive and 13% negative, compared to the two-thirds majority of the optimists in Poland and the Baltics. Hungary only managed to earn a top score for the development of exports with a share of 40% positive opinions, but still ranked far behind Lithuania and Bulgaria.
On the other hand, the opinion of the managers is tragic concerning the awaited development in terms of employment and investments. Only 29% and 27% respectively of the managers working in Hungary expect growth, while 15% and 22% see the perspectives from 2014 in these fields as weak. Only Serbia is doing worse than us in these two categories, and surprisingly the labour market looks exhausted also in Slovakia and Estonia.
Tribute to Hungary’s flexibility on labour law
Finally the managers examined 21 location factors, from which we would like to highlight the ones that are most relevant for Hungary. The country finished in the top field in only seven factors, with the best individual results being third for the flexibility of the labour law and fourth for infrastructure and qualification of the workforce.
Besides this the country ranked over the CEE average for legal security and R&D facilities, while only 37% were satisfied with the quality and availability of local suppliers, earning only sixth place for this factor. Besides the many factors that scored around average, some such as taxation and predictability of economic policy (not surprisingly) were evaluated quite negatively.
Among all the 21 factors there was only one on which the Germans residing in Hungary were clearly positive, namely EU membership, with 69% satisfied.
The research involving more than 1,400 top managers concluded that Poland was the most attractive country, followed by the Czech Republic and Estonia. Another Visegrád country in the close proximity of Hungary took place number four in the competition for the favours of the German investors: Slovakia.
Hungary did not even earn the next place since besides the Baltics even Serbia and Croatia seem to be more attractive today. The only consolation is the placement of Romania, which slid down again close behind Hungary after the results of 2012.