Where is Hungary’s economy headed in 2021?

Hungary’s economy has been growing steadily since 2013 at a rate of 2% to 4% per year, although the recent coronavirus crisis is likely to cause a slump in the country’s economy.

According to the Organization for Economic Co-operation and Development (OECD), Hungary has managed to contain the spread of the virus successfully, which could give the country a chance to see a sharp rebound in its economy in 2021.

This rebound could be primarily driven by pent-up demand in the country and by the progressive recovery of the euro region’s economy.

Meanwhile, Hungary also plans to continue supporting its domestic economy through expansionary policies including higher government expenditures and continued assistance to local businesses through cheap loans backed by the National Bank of Hungary.

What is driving growth for Hungary’s economy?

Hungary’s stock market (BUX) is down 22% for the year, as the country’s economy is still struggling to recover from the economic fallout caused by the virus.

Investors appear to be put off by the fact that a second wave of the virus could hamper the country’s economic recovery and, therefore, although the BUX index has rebounded off its March lows, investors are still hesitant to buy stocks at the moment.

Before the virus stroked, Hungary’s economy was on track for another good year, primarily fueled by record-low unemployment levels and higher private consumption. 

These higher levels of consumption were supported by an increase in wages in the private sector, although inflation risks loomed in the backdrop during 2019.

It is important to note that the services sector accounts for the highest percentage of the country’s gross domestic product at 65% – which makes Hungary an emerging market – followed by industries, which contribute more than 30% to the nation’s economy.

Meanwhile, Hungary has managed to attract foreign investments in the past five years, with the country positioning itself at the top of the list in terms of inward foreign direct investments in the region, only behind Estonia and the Czech Republic.

Germany remains Hungary’s top export destination, which could benefit the country during its recovery, as Germany’s economy has managed to rebound quite rapidly from the coronavirus crisis, while the government has also acted swiftly to contain the spread of the virus, although fears of a second wave appear to be materializing.

Which are the main challenges for Hungary’s economy now?

Without a doubt, Hungary’s most important challenge right now is to prevent a second wave of the virus at all costs, as another wave of lockdowns could push the economy down the cliff.

Forecasts from the OECD anticipate that a second wave could push down the gross domestic product of the country by 10% or more, although the actual damage is hard to estimate as the way in which certain key export partners manage the virus situation and its corresponding economic fallout – especially Germany – could further affect Hungary’s chances of recovering.

Aside from COVID-19, Hungary also has room for improvement in terms of systemic corruption, as the country received a score of 55 on a scale of 100 in a survey from Transparency International, only preceded by Turkey, Colombia, and Mexico, all of which had scores higher than 60.

Meanwhile, an aging population also remains a challenge for Hungary, as the proportion of individuals aged 65 and above is growing in relation to their younger peers.

Is the Hungarian economy presenting an opportunity at these levels?

It can be argued that once the virus situation is behind us and European economies start to rebound of these low levels, Hungary is going to see an improvement in the demand for its goods by neighboring economies, which will then contribute to an improvement in its domestic economy – the driving force of its growth so far. 

That said, investors should be patient enough to withstand the fallout that a second wave of the virus could cause in the country’s economy, although prospects of a coming vaccine should reduce the extent of the damage. 

Taken all that into consideration, Hungary’s economy at these levels – and the BUX index for that matter – present an opportunity for buy-and-hold investors who can take advantage of these low equity prices to buy into a country that has shown its ability to grow over the past few years.