According to Bloomberg’s latest innovation ranking, Hungary is placed as the 26th most innovative world-wide. Regarding manufacturing industry performance, Hungary is ranked as the 16th as a result of the high share of value added as percentage of GDP in this sector (high proportion in the economy) as well as the significant share of high-tech products within manufacturing exports. In addition, as far as R&D expenditures in the percentage of GDP concerned, among the regional peers Hungary is ahead of Poland and Slovakia.
According to the latest index on economic freedom prepared by the Wall Street Journal and the Heritage Foundation (Index of Economic Freedom), Hungary – having moved up one place – is ranked as the 48th, ahead of Poland and Slovenia, or France and Italy, among others, of the euro-zone countries. The report highlights Hungary’s high-quality infrastructure, thriving private sector or well developed regulatory system. With regard to freedom of markets (trade, investments, financial markets) the country’s performance is considered outstanding. The freedom of Hungarian trade is placed as the 11th in the global ranking.
Ernst&Young published its annual report on globalization last week which included its Globalization Index 2012 for the 60 largest economies of the world. The index analyzes the drivers of globalization on the basis of five sub-indices: openness to trade, capital movements, exchange of technology and ideas, labour movements and cultural integration.
In Hungary within the current account real economic transactions posted significant surpluses in the past couple of years. One element of these has been the positive trend regarding foreign trade which materialized since 2009: since the onset of the global economic crisis Hungarian foreign trade has been continuously and permanently producing surpluses; Hungarian exports typically exceed imports.
As of the second half of 2010 several employment statistics signal favourable trends, as in case of young adults, those above the age of 50 and those working part-time the number of employed increased by the third quarter of 2012. In addition, employment trends of women have also turned positive in this period. Yet another favourable development has been that the overall payroll numbers increased in most sectors of the national economy, and within the manufacturing industry – with the exception of the manufacturing of computers, electronic and optical products – statistics indicate improvement in each significant sub sector.
In 2012 – according to preliminary cash flow data – it is almost certain that the deficit target of 2.7 percent assumed for 2012 and calculated by EU methodology will be achieved. The accrual-based ESA95 deficit published recently by the Hungarian Central Statistical Office (KSH) also confirms this assumption. On the basis of data it can be concluded that the government sector deficit as a percentage of GDP was the lowest in Q3 2012 since Q1 19991 and it is 5 percentage points lower compared to the figure of the corresponding period of 2011.
In the third year after it had been elected the Hungarian Government has continued implementing wide-ranging reforms launched earlier. Hungary as a small country with an open economy has been severely affected by the crisis which has highlighted the fact that stable economic growth in the medium and long term can only be ensured by an adequately diversified economic structure. In other words, Hungary needed an economic trend reversal actively underpinned by economic policy.
Favourable trends have continued recently on the Hungarian government securities market. In the past six months yields have come down, forint-denominated government securities holdings of non-residents have reached a historic high and the stock of government securities held by households has doubled this year. Along with favourable international trends the improvement of risk perception regarding Hungary, also reflected by falling CDS premia, has also largely contributed to the aforementioned positive tendencies.
The economic role of women and their labour market participation has been an issue gaining more and more significance. Hungary is no exception: via the National Cooperation Programme the Hungarian Government aims to create a more family-friendly labour market. One of the Programme’s pivotal elements pays special attention to women’s employment, as without improving it a family-friendly Hungary cannot be established.
Economic policy projections focus on growth and increasing employment. Economic development based on research, knowledge and innovation as well as stimulating R&D&I required for producing goods of high added value is the sine qua non of this objective. This is what the National Research, Development and Innovation Strategy serves, which ambitiously targets R&D spending in Hungary to reach 1.8 percent of GDP by 2020. It has been one of the key resolutions of the Government to assist accomplishing this goal via the instruments at its disposal and one of these is establishing a competitive R&D tax incentive system. Indirect tax incentives may carry several advantages (less distortion to market processes; smaller administrative burden; more transparency and predictability, lower direct R&D costs and significantly influence the choice of investment location by large enterprises).