The business environment in Hungary is favourable in terms of paying taxes, as the country offers relatively low corporate income tax rate of a mere 16% and the VAT rate at the level of 20% and 5% while the personal income taxes provide two tax bands of 18% and 36%. When compared to other countries in Central and Eastern Europe low tax rates are one of the biggest advantages of Hungary in terms of doing business, especially if the fact that Hungary is member of the EU and a stable democracy despite of the occasional political problems.
In the period between 2000 and 2008, the annual GDP growth in Hungary averaged nearly 4%, however, the forecasts for 2009 and 2010 assume that economy will decrease by 6.2% and 2.3% respectively. This will be a continuation of the economy slowdown started in 2007 when the GDP growth reached its minimum of just 1.1% and witnessed also in 2008 hitting the 0.5% growth value. Partially those problems were caused by the uncertain situation of the government resulting in lower value of the foreign investments and slow-down of the domestic demand. To accelerate economic recovery major development programmes have been launched by the government partly through European Union funds. EU subsidy of 22.4 billion Euro will be available to Hungary until 2013. The country has never before had an opportunity for targeted development on such a scale throughout its history. Despite all those aid it will still take some time until the 5.2% GDP growth rate of the year 2000 will be recorded again.
The inflation rate in Hungary declined substantially at the beginning of this decade, from 14% in 1998 to 3.9% in 2006. However, as a result of higher taxes and food prices increase, inflation in 2007 increased to 8.0% and to 6.2% in 2008. The forecasts for the following years show that the inflation rate will decrease to the level of 3.9% in 2009 to drop to the level of 2.6% in 2010. On the other hand the contraction in the GDP growth will have a positive impact on the inflation level.
The Hungarian currency is fully convertible since 1996. The exchange rate of the Hungarian Forint (HUF) remains relatively stable when compared to other currencies of the Central and Eastern Europe, however the Hungarian currency is forecasted to weaken from the level HUF 251 in 2008 to HUF 314 in 2009 per one Euro to decrease again in 2007 reaching the level of HUF 251.
The unemployment rate in 2008 was at the low level of 7.8%, however, the national unemployment figures tend to hide regional differences. In the Budapest – Gyor – Szekesfehervar triangle, where the majority of foreign investment are concentrated, the lack of qualified employees can be observed and some companies, such as Nokia or Suzuki, employ ethnic Hungarians living on the other side of the Slovakian border, while some others transport employees by bus from the Eastern Hungary. One of the Hungarian economy problems is that the population is not very mobile while most people generally live their whole life within 30km of where they were born. As a result in some villages 70-90% of people are unemployed. With the negative growth rates in coming years he unemployment rate is forecasted to increase to the level of approx. 12.2% in 2009 and 12.6% in 2010.
The basic factors of the investment attractiveness of Hungary are developed infrastructure and focus on advanced technologies and innovation into production of goods representing higher added value. Germany is the most important investor, responsible for 30% of all FDI. Germany is followed by the Netherlands (18%) and Austria (11%). The United States has been the largest non-European investor (5%) and in many cases the investments going through the Netherlands and other European countries also originate from the United States.
It is expected that in 2009 and 2010 the foreign direct investment in Hungary will reach about EUR 1.4bn and EUR 1.5 bn respectively. This will come after the record year of 2008 when foreign direct investments of EUR 3.6 bn were located in Hungary.
The value of exports from Hungary in 2008 has increased by the 4.6% and imports has faced 4% increase compared with 2007. The coming years are forecasted to bring a substantial decrease as values for 2009 show 11% and 13.2% reduction respectively. A slight improvement and again growth in the foreign trade might be witnessed in 2010. One of the reasons for the contraction in the international exchange of Hungary is a concentration of the automotive factories in the country.
The total length of roads in Hungary is 159,568 km. Paved roads constitute approx. 44% of all roads in Hungary (70,050 km), while unpaved constitute the remaining 56% (89,518 km). The condition of road infrastructure in Hungary is rated as good, although there are only almost 1,000 km of highways. The total length of the railways in Hungary is 7,937 km and railways are one of the most important means of transport in Hungary for long – distance freight transport. Just like road transportation, this sector was privatized. There are 18 airports with paved runway in Hungary, but Ferihegy - Budapest International Airport, is Hungary’s main airport.
In 2007, almost 38% of the population had access to the internet and over 9.9 million people used mobile phones. At the end of 2007, the country’s broadband penetration rate was the highest in the region: 17% and the estimations for 2008 show that this number will reach the level of approx. 19% (1.9m people).
Hungary is landlocked country situated in the middle of Europe, bordering with Austria (366 km), Croatia (329 km), Romania (443 km), Serbia and Montenegro (151 km), Slovakia (677 km) Slovenia (102 km), the Ukraine (103 km).
Hungary is divided in 19 administrative regions – counties. Additionally, the country’s capital – Budapest is independent of any county government. There are also 23 cities with county rights, which authorities have extended powers, however the cities still belong to the territory of the relevant counties and are not independent.