In brief this is a pro-business, low-tax economy with a clear ambition to close the gap in its per capita GDP with neighboring Germany. It’s a huge gap – with national average incomes less than a third of Germany’s – and therein lies the investment opportunity.
Will they ever make it? Probably not. But they may well make up a good deal of the gap. For a start those very low wages are a competitive advantage. It’s already attracted major investment by Audi and Mercedes. Auto output surged by 115,000 to 480,000 vehicles last year.
Ditto the agricultural sector. Investment in higher productivity farming is boosting production from ducks to fine wine. A beaten-up currency makes Budapest one of the cheapest places in the world to have dinner. It’s also a safe and pleasant place to be a tourist, student or young entrepreneur.
That explains why Hungary was the fastest growing country in Europe last year after Ireland, with a 3.6 per cent gain in GDP. Some economists think five per cent is possible this year after six per cent in the first quarter, unless the global economy falters badly.
Early investors are winning hands down. Take billionaire Khalaf Al Habtoor from Dubai. He bought the Meridien hotel for 63 million euros in 2012. Goodness knows what it will be worth when he relaunches it as a Ritz-Carlton next spring. Last year he acquired the InterCon hotel
Upmarket residential real estate in Budapest appears to have bottomed out in 2013 with prices no long falling. Beautiful apartments still currently sell for a fraction of London prices for the swankiest addresses.
For the stock market it may be best to wait for a correction in all European bourses, now overvalued due to artificially low interest rates courtesy of the central banks. Still the longer-term investor ought to be paying attention to Hungary.
Income tax will be cut from 16 to 15 per cent on January 1st. The government already has its debts under 80 per cent of GDP, this is no Greece, and it balances its budget.
The aim is to join the euro after 2020. In the meantime having its own currency allows Hungary to remain very competitive while offering foreign investors even more value for their US dollars.
The public sector is being held back to benefit of the wealth-creating private sector. What do you make of a country that has just axed the number of MPs in its parliament from over 600 to 199?
This is a liberal market economy, not another eurozone socialist basket case, although the recent nationalizations in the banking sector suggest this is tempered by prudence and not a question of dogma.
Indeed, if you want to see the New Europe then hopefully this is Hungary and not France with its stench of economic stagnation and decline. Hungary’s government just is not going to let anything get in its way.
Last week alarm bells sounded in Brussels when it declared an intension to keep illegal migrants from Africa and the Middle East out by building a fence along its 175-kilometre border with Serbia. Hungary argues that this is mass migration, not political asylum and that it has no legal or moral obligation to take them.
Instead the Hungarian government proposes a system of camps near the borders to offer humanitarian assistance, not a path to citizenship and a life of state handouts for culturally very different people.
Hard headed commonsense is surely what makes a country succeed economically and that’s all that foreign direct investors really want after all because they can take their money anywhere unlike some unfortunate citizens.
Hungary seems on the right path to offer the highest returns for the patient long-term investor in Europe.