Shocking decline: How Hungary fell behind its neighbours after joining the EU
Hungary joined the European Union in 2004 with the aim of catching up or at least approaching the economic and social development of Western European countries. The optimism of the country, then one of the most advanced economies in the region, was well-founded: a network of motorways, a cheap and skilled labour force and infrastructure made Hungary attractive to investors. By tapping into the resources and opportunities offered by the EU, growth and development were a given, at least on paper.
Over the past two decades, the Hungarian economy has grown in terms of numbers, but it has fallen back significantly compared to its competitors. According to Népszava, GDP per capita in purchasing power parity terms has increased by a factor of 2.2, but the country has slipped from 19th to 22nd place in the EU.
It is particularly unfortunate that Romania and Bulgaria, which started out in a much weaker position than Hungary, have now overtaken it in many indicators. In terms of consumption, for example, Hungary fell from second last in 2022 to last in 2023, ahead only of Bulgaria, which has also moved up in the meantime.
Employment and income
The labour market is one of the areas where the Hungarian economy has achieved outstanding results. Employment rates have improved significantly, with the employment rate for the 15-64 age group rising from 57% at the time of entry to 74.4%, making it one of the best performers in the EU.
Wages have also increased significantly: Hungarian wages in purchasing power parity (PPP) terms have increased by almost two and a half times, ahead of Slovakia. However, the picture for pensions is less favourable, with Polish, Romanian and Slovakian pensions also rising faster than Hungarian pensions. Consumption is also on a downward trend: from being the region’s second in 2004, it has fallen to last place in 2022.
Policy mistakes, economic downturn and corruption
The deterioration in Hungary’s economic performance is closely linked to policy failures. Under the MSZP-SZDSZ government, the economy was characterised by loose fiscal policy and indebtedness after accession. Although many infrastructure investments were made, the 2008 financial crisis severely set back the country’s performance. A EUR 20 billion loan from the EU and IMF saved the country from bankruptcy, but recovery has been slow.
After 2010, the Orbán governments adopted an unorthodox economic policy stance that initially dampened growth. Later, growth was artificially stimulated by the central bank and the government pumping large amounts of money into the economy, which produced short-term results but led to higher inflation and structural problems in the longer term. An industry-led economic policy, with a focus on low-value industrial production rather than high-value-added innovation, has also contributed to the regional backwardness.
Corruption and the lack of rule of law have exacerbated the situation. The Orbán governments have often used EU funds inefficiently and established a system of patronage. Rampant corruption has led the EU to suspend a number of EU funds, costing the country billions of euros. In recent years, these policies have not only alienated foreign investors, but also Hungarian businesses, and a growing number of Hungarian businessmen have voiced their criticism of economic governance.
The future
The future of the Hungarian economy depends on fundamental reforms. Restoring the rule of law and fighting corruption are essential to regain access to EU funds. Meeting the conditions for euro adoption can provide a stable anchor for a new economic policy aimed at sustaining growth and improving competitiveness. Without the promotion of free competition and the development of high-value-added sectors, the Hungarian economy could remain trapped in middle-income countries.
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