HORIZON

Information, news and

2014 2015 2016 trends concerning
the Hungarian
investment
environment

2016 Q4

1
2014 2015 2016

2
HORIZON
Information, news and
trends concerning
the Hungarian
investment
environment

2016 Q4

3
CONTENTS

4
1. Economic growth 9

2. Development of business activity indices 12

3. Public debt and budget 14

4. Inflation 15

5. Foreign Direct Investment (FDI) 16

6. Competitiveness 17

7. Foreign trade 18

8. Employment 21

9. Unemployment 22

10. Wages, salaries 24

11. Labour costs and minimum wage 25

12. Education and qualifications 27

5
2014 2015 2016

6
 SUMMARY

• In 2017, the growth rate of the Hungarian economy will increase significantly.

• The consumer confidence index reached its ten-year high in December last year.

• By the end of 2017, public debt may decline to below 73% of GDP.

• This year, the inflation rate will increase substantively relative to the 2016 figure.

• After a setback in 2016, the value of global foreign direct investment may resume
its increasing trend.

• In the World Bank’s ‘Doing Business 2017’ publication, Hungary moved up one rank
relative to the previous year.

• In the first ten months of 2016, the value of Hungarian exports grew to EUR 77.4
billion, while imports increased to EUR 68.86 billion.

• Between September and November 2016, the average number of employees was
4,414 thousand, which is 3.3% higher than a year before.

• In September-November 2016, the unemployment rate decreased by 1.7 percentage

points to 4.5% compared to the same period in 2015.

• In January to October 2016, gross average earnings increased by 6.0% on a year-

on-year basis.

• As of 1 January 2017, the social contribution tax decreased to 22%, the minimum
wage and the guaranteed wage minimum increased to HUF 127,500 and HUF
161,000 respectively.

7
2014 2015 2016

8
 1 ECONOMIC
GROWTH
The Hungarian gross domestic product was 2.2% higher in Q3 2016 than in the same period of
the previous year. Market-based services and agriculture contributed the most to this growth.
According to the figures balanced and adjusted seasonally and with the calendar effect, the output
of the economy increased by 1.6% compared to the same quarter in 2015 and by 0.3% compared to
the previous quarter.1

On the production side, the added value of industry increased by 0.8%, including that of the
manufacturing industry increasing by 0.7%, compared to the same period in the previous year.
Within manufacturing, the manufacture of computer, electronic and optical products showed the
most marked growth. The output of the construction sector has declined by 12% in Q3. It should be
noted that the value added by agriculture increased by 21%, which was reflected in the favourable
harvest results.

The gross value added by services in aggregate was up by 2.6%, while the value added by trade,
accommodation and food and beverage services increased by 5.1%. As a result of the expansion
of IT services, the value added by the information and communication section increased by 1.8%.
The aggregate added value of professional, scientific, technical and administrative activities rose by
5.8%; professional, scientific and technical activities produced the most significant expansion.

The main contributors to the 2.2% GDP growth in Q3 2016 were services, industry and agriculture at
1.3, 0.2 and 1.0 percentage point, respectively. In contrast, construction reduced the GDP growth rate
by 0.4 percentage point.

INcRease OF tHe HuNGaRIaN GDP

(in percentage, year over year)

3.7
3.2
2.9
2.6 2.5
2.0

1.1

Source: HCSO,2 note: after eliminating the

1 2 3 4 1 2 3
calendar effect

2015 2016

1 http://www.ksh.hu/gyorstajekoztatok/#/hu/document/gdp1609
2 http://www.ksh.hu/docs/hun/xstadat/xstadat_evkozi/e_qpt001.html

9
On the consumption side, the actual consumption of households increased by 3.8% relative to
the corresponding period of 2015. Among the components of actual consumption, household
final consumption expenditure, the largest segment, increased by 4.5%. This is attributable
to the personal income tax cut, the growth of disposable income and the low-inflation
environment. Gross fixed capital formation decline by 8.8%. This continues to be attributable
mostly to the declining level of EU-financed investment projects, which had the most severe
effect on the investments of budgetary organisations. Consumption may continue to expand
in the forthcoming period as a result of the minimum wage hike, the reduction in the number of
vacancies and the lowering of social contribution rates.3

Final consumption contributed 2.0 percentage points, and gross capital formation 0.4
percentage point to the 2.2% GDP growth in Q3 2016, whereas the foreign trade balance in
aggregate slowed output growth by 0.2 percentage point.

According to the autumn forecast of the European Commission, Hungarian GDP is expected
to grow by 2.1% in 2016. The continued growth of household consumption is promoted by
strengthening consumer confidence, expanding retail lending and improving labour market
conditions. As a result, the consumption of the private sector is likely to remain the main driver
of economic growth. Investments may recover gradually in 2017 and 2018, supported by the
accelerated draw-down of EU funds, the continued recovery of domestic consumption, the
expansion of household investments and numerous large investment projects in the automotive
industry. These will also trigger a growth in their vendor network, while investments of the SME
sector may be promoted by the favourable interest environment. On the production side, the
dynamic growth of market services and a favourable year for agriculture may also be conducive
to economic growth.

The corporate profit tax rate has been reduced to 9% as of 2017, which may have a positive
impact on the investment decisions of undertakings. It should be noted that in 2016 all three
large rating agencies (Fitch, Standard & Poor’s, Moody’s) moved Hungary back into investment
grade. In its December 2016 outlook4, the Ministry for National Economy envisages economic
growth of 4.1% for 2017, while the National Bank of Hungary (MNB) expects a 3.6% growth rate.5

Forecasts of GDP growth in the Visegrád countries (per cent)

IMF OECD European Commission

2016 2017 2016 2017 2016 2017
Hungary 2.0 2.5 1.7 2.5 2.1 2.6
Czech Republic 2.5 2.7 2.4 2.5 2.2 2.6
Poland 3.1 3.4 2.6 3.2 3.1 3.4
Slovakia 3.4 3.3 3.6 3.4 3.4 3.2

Source: IMF,6 OECD,7 European Commission8

3 http://www.portfolio.hu/gazdasag/nagyot_lassult_a_magyar_gazdasag.240088.html
4 http://www.kormany.hu/download/6/7b/e0000/Makrogazdas%C3%A1gi%20%C3%A9s%20k%C3%B6lts%C3%A9gvet%C3%A9si%20el%C5%91rejelz%C3%A9s%20
2016%20december.pdf
5 http://www.mnb.hu/letoltes/hun-ir.pdf

10
Growth continues to be intensive in Central and Eastern European countries, while the
International Monetary Fund emphasised in its autumn report that the suppression of the
black economy and increasing the efficiency of tax collection are prerequisites for continued
growth. The growth of output was supported by the robust industrial output in Slovakia and
the expansion of domestic consumption in the Czech Republic (similarly to Hungary). The IMF,
the OECD and the European Commission forecast economic growth of at least 2.5% in all four
Visegrád countries for the next year.

International GDP growth figures (forecast, %)

IMF OECD
2016 2017 2016 2017
World economy 3.1 3.4 2.9 3.3
United States 1.6 2.2 1.5 2.3
Japan 0.5 0.6 0.8 1.0
Euro area 1.7 1.5 1.7 1.6
Germany 1.7 1.4 1.7 1.7
China 6.6 6.2 6.7 6.4
India 7.6 7.6 7.4 7.6
Source: IMF,9 OECD,10

In H1 2016, the global economic growth was influenced substantially by concerns relating to
the potential hard landing of the Chinese economy, the adverse effect of low oil and commodity
prices on exporters and partly by the financing terms becoming more stringent for emerging
countries due to the start of the tightening cycle in the US. Growth in the EU was supported
by internal demand, while the contribution of investment remained modest.11 US growth was
attributable to expanding exports and growing inventory accumulation, which were able to
offset the decline in household consumption. In China, retail trade turnover continued to grow
intensively while industrial growth remained subdued. Substantial public expenditures and
dynamic lending also supported the substantive growth of the economy.

In December 2016, the Fed and the ECB adopted monetary policy decisions reflecting different
approaches. With its 25-basis-point rate increase, the Fed tightened monetary conditions
for the first time since December 2015, while the ECB decided to extend its asset purchase
programme, thus loose monetary policy will be sustained in the Euro area for a length of time. In
line with the central bank’s measure, the dollar appreciated vis-a-vis major currencies early in
November.12 Both the International Monetary Fund and the OECD expect EU economic growth
to accelerate in 2017.

Global economic growth next year will be severely affected by the exact timetable of the exit
of the United Kingdom from the European Union as well as the economic policy of the Trump
administration. The IMF expects a global economic growth rate of 3.4% for 2017, while the
OECD’s expectation is 3.3%.

6 http://www.imf.org/external/pubs/ft/weo/2016/02/pdf/text.pdf
7 http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-outlook-volume-2016-issue-2_eco_outlook-v2016-2-en#.WFoyPVM
rKUk#page268
8 http://ec.europa.eu/economy_finance/publications/eeip/pdf/ip038_en.pdf
9 http://www.imf.org/external/pubs/ft/weo/2016/02/pdf/text.pdf
10 http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-outlook-volume-2016-issue-2_eco_outlook-v2016-2-en#.WFoyPVM
rKUk#page268
11 http://www.kormany.hu/download/6/7b/e0000/Makrogazdas%C3%A1gi%20%C3%A9s%20k%C3%B6lts%C3%A9gvet%C3%A9si%20el%C5%91rejelz%C3%A9s%20
2016%20december.pdf
12 https://www.mnb.hu/letoltes/hun-ir.pdf

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 2 D eve l opment of B U S I N E S S
A C T I V I T Y indices

After its increase in November, GKI’s business activity index continued improving in December.
With the exception of stagnating expectations in services, each industry in the business sector
showed higher optimism relative to the previous month. In the last month of the year the
industrial confidence index continued its upward trend observed in November even though
it had not reached its peak seen in the summer. The commercial confidence index improved
perceivably, which was attributable to the improved perception of inventories and order books,
while the assessment of sales positions deteriorated slightly.

In December 2016, all sectors, with the exception of construction, upgraded their employment
plans; simultaneously, fears of unemployment among the population abated. Each sector
expressed a growing intention to increase prices, most notably in trade and construction, and
the perception of the position of the Hungarian economy also continued to improve.

G K I b u s in e ss ac t ivi t y ind e x

15
10
7.5

7.2
5.8

5.6
5.2
5.0
4.9

4.6

4.6
4.7
5.1
4.4

4.6
4.2

5
3.5

3.7

3.7
2.8
2.3
2.2

1.0
1.7

1.7

-0.9
-0.8

0.0

1.2

-2.2
1
-1.5
-1.8

-1.8
-1.7

0
-2.8
-2.1
-2.9

-2.9

-3.2
-3.2

-3.2

-4.5
-3.6

-3.6
-3.1

-3.7
-3.1

-3.9

-3.9

-5
-10
-14.1
-16.6

-16.1

-16.5
-18.5
-18.6

-15
-19.6

-20.2
-19.2

-19.2
-18.9
-19.6

-20.3
-22.4

-22.6

-21.1
-22.7

-23.8
-23.8

-25.0

-20
-25.8

-26.0

-27.0

-28.3

-25
-30
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

2015 2016
Consumer confidence index
GKI business activity index
Business confidence index
Source: GKI13

13 http://www.gki.hu/wp-content/uploads/2016/12/GKI_konj_1612.pdf

12
GKI’s consumer confidence index continued its climb in December, reaching its highest since
the spring of 2006. Relative to November, households improved their expectations of their own
financial position over the next year, while they were more pessimistic about their ability to
save.

2014 2015 2016

13
3 P ub l ic debt
and budget
In 2016 the cumulative cash-based deficit of the central subsystem of the general government
was HUF 848.3 billion as indicated by preliminary figures, HUF 389 billion less than in 2015.
The central budget closed the year with a deficit of HUF 771.6 billion, the social security funds
produced a deficit of HUF 75.2 billion and the extrabudgetary funds HUF 1.5 billion. The
positive budgetary developments of 2016 reflect the favourable economic processes and the
government measures to whiten to economy; the resulting higher tax revenues and the cyclical
nature of EU funds all contribute to the stable budget position. HUF 490 billion more tax and
contribution revenues were collected last year than in 2015.14

In response to the positive developments underlying the budget, in December the Government
decided to make available additional funds to certain economic actors; consequently, the
deficit of the central subsystem amounted to HUF 907.6 billion in the last month of the year.15
Consequently, the fiscal deficit of 2016 calculated with the EU methodology may have been
between 2.1% and 2.3% of GDP. According to the forecast of the Ministry for National Economy
issued at end-December 2016, the fiscal deficit will remain consistently below 3% between
2017 and 2020. Also, fiscal policy provided more support to aggregate demand because the
wage increase and the cuts of the corporate profit tax and social contribution rates increase
household income and the profitability of undertakings.16

According to the MNB’s projection, the deficit of the government sector as a percentage of GDP
may have been between 1.5% and 2.0% of GDP in 2016; this figure will be around 1.8-2.2% in
2017 while the baseline projection envisages a deficit of 2.0-2.2% for 2018. The central bank
expects the declining trend of the gross public debt to GDP ratio to continue; consequently, the
debt ratio may decrease to 73.5-74.0% by end-2016, then to go below 73% in 2017 and below
72% in 2018.17

Forecasts of the general government balance

2016 2017 2018

Ministry for National Economy -(2.1%-2.3%) -2.4% -1.8%

National Bank of Hungary -(1.5%-2.0%) -(1.8%-2.2%) -(2.0%-2.2%)

Source: MNB,18 MNE19

14 http://www.kormany.hu/hu/nemzetgazdasagi-miniszterium/hirek/bevalt-a-gazdasagpolitika-stabilan-zarta-az-evet-az-allamhaztartas
15 http://www.kormany.hu/hu/nemzetgazdasagi-miniszterium/hirek/bevalt-a-gazdasagpolitika-stabilan-zarta-az-evet-az-allamhaztartas
16 http://www.kormany.hu/download/6/7b/e0000/Makrogazdas%C3%A1gi%20%C3%A9s%20k%C3%B6lts%C3%A9gvet%C3%A9si%20el%C5%91rejelz%C3%A9s%20
2016%20december.pdf
17 http://www.mnb.hu/letoltes/hun-ir.pdf
18 http://www.mnb.hu/letoltes/hun-ir.pdf
19 http://www.kormany.hu/download/6/7b/e0000/Makrogazdas%C3%A1gi%20%C3%A9s%20k%C3%B6lts%C3%A9gvet%C3%A9si%20el%C5%91rejelz%C3%A9s%20
2016%20december.pdf

14
4 I nf l ation

Based on the figures of the Hungarian Central Statistical Office (HCSO), consumer prices
in November 2016 were 1.1% higher on average than a year earlier. On the whole, food prices
increased by 0.7% on average compared to November 2015; the price of sugar rose by 16.3%,
while the prices of pork and eggs declined by 8.2% and 3.5%, respectively. Last year the prices
of alcoholic beverages and tobacco products increased by 2.1% on average, prices of services by
1.8% and of articles of clothing by 0.6%. The price of household energy remained unchanged
while the prices of durable consumer goods declined by an average of 0.8%. In November 2016
consumer prices increased by 0.1% on average relative to the previous month.20

The harmonized index of consumer prices (HICP) calculated by Eurostat was 0.6% both in the
European Union and in the Euro area in November 2016. The highest inflation was registered in
Belgium, where its rate was 1.7%, while Bulgaria and Cyprus had the lowest inflation rate, with
prices falling by 0.8%. Countries in our region continue to have low inflation rates on the whole;
alongside Hungary, the Czech Republic (1.6%) and Slovenia (0.7%) had rates above the EU
average. Poland, Romania and Slovakia had inflation rates around zero, the latter two producing
a minimal deflation as registered by Eurostat.21

H a rmoni s e d ind e x of con s u m e r pri c e s in t h e C e n t r a l a nd E a st e rn

E u rop e a n co u n t ri e s a nd t h e E u rop e a n Union ( N ov e m b e r 2 01 6)

Country HICP The inflation report of the MNB for December 2016
Hungary 1.1 envisages an inflation rate of 0.4% for 2016 and forecasts
2.4% for 2017; the rate of inflation may approach the
Bulgaria -0.8
medium-term inflation target of the central bank (3%) only
Czech Republic 1.6
in H1 2018. Based on the MNB’s forecast, increases in the
Poland 0.2 consumer price index will be driven by products outside
Romania -0.2 the core inflation basked (in particular automotive fuel and
Slovakia -0.2 market energy) in the forthcoming quarters, and by core
inflation after mid-2017. Hungary will face a moderate
Slovenia 0.7
external inflation environment in the medium term as
European Union 0.6 the rate of inflation of the Euro area, our most important
foreign trade partner, will be around the medium-term
Source: Eurostat target of the European Central Bank (2%). Because of the
expansion of household consumption triggered by income
growth, the MNB forecasts a gradual rise in core inflation
adjusted for indirect taxes, reaching 1.3% in 2016 and 2.3%
this year.22

20 http://www.ksh.hu/docs/hun/xftp/gyor/far/far1611.html
21 http://ec.europa.eu/eurostat/documents/2995521/7773874/2-16122016-BP-EN.pdf/537e4b39-6cf9-4866-9547-4853e58c4a78
22 https://www.mnb.hu/kiadvanyok/jelentesek/inflacios-jelentes/2016-12-22-inflacios-jelentes-2016-december

15
5 F oreign D irect
I nvestment
(FDI)
According to OECD’s figures, in H1 2016 global FDI flow fell by 5% to USD 793 billion relative
to H2 2015. In Q1 2016 foreign direct investment amounted to USD 513 billion, declining to USD
279 billion by Q2. In the April-June 2016 period the value of FDI inflow to the European Union
declined in particular. Nevertheless, the value of investment into OECD countries increased by
14% in H1 2016 over the figure seen in H2 2015. The increase is attributable predominantly to
the expansion of investment in the US and the UK; in the first six months of 2016 the value of
investments in these two countries approximately trebled relative to the previous six months.
Non-OECD G20 countries all registered a decline in H1 2016 (with the exception of Russia), the
most notable drop experienced by South Africa (-45%) and China (-37%). In Russia the value of
investments trebled over the low base of USD 3 billion, reaching USD 9 billion.23

According to the expectations of UNCTAD published in October 2016, the global FDI flow in the
whole of 2016 may have fallen by 10-15% to around EUR 1,500-1,590 billion. The decline re-
flects the fragility of the global economy, the weakness of aggregate demand, the slow econom-
ic growth of commodity exporting countries as well as the effective government measures to
combat investments made for reasons of tax avoidance. Geopolitical risks and regional tensions
also make investors wary. It should also be noted that after a rising trend of two years, in 2015
the profits of the 5,000 largest multinationals declined to the lowest level since the financial
crisis of 2008-2009.24

UNCTAD expects that the value of global FDI may increase in 2017, reaching around USD 1,600-
1,720 billion, then rising to USD 1,730-1,880 billion in 2018. The international organisation found
in its survey that the most attractive countries for investors are the United States, China, India,
the United Kingdom and Germany.25

23 http://www.oecd.org/daf/inv/investment-policy/FDI-in-Figures-October-2016.pdf
24 http://unctad.org/en/PublicationsLibrary/webdiaeia2016d3_en.pdf
25 http://unctad.org/en/PublicationsLibrary/webdiaeia2016d3_en.pdf

16
 6 C ompetitiveness

The World Bank published its ‘Doing Business 2017’ at the end of October 2016. Based on the
survey covering 190 countries, Hungary ranked 41st, having improved one notch since the
previous survey. Apart from Hungary, the Czech Republic, Poland and Romania also moved up
in the ranking while Bulgaria, Slovakia and Slovenia ranked lower than in the previous year.26

R a nking of C e n t r a l E a st e rn E u rop e a n co u n t ri e s in t h e D oing

B u s in e s s s u rv e y

Country Doing Business 2017 ranking Doing Business 2016 ranking

Hungary 41 42

Bulgaria 39 38
Czech Republic 27 36
Poland 24 25
Romania 36 37
Slovakia 33 29
Slovenia 30 29

Source: World Bank27

The World Bank’s Doing Business 2017 ranking is based on ten major topics: starting a
business, dealing with construction permits, getting electricity, registering property, getting
credit, protecting minority investors, paying taxes, trading across borders, resolving insolvency
and enforcing contracts. Hungary performs outstandingly among the 190 countries in terms of
trading across borders (1st place), credit terms (20th place) and the enforcement of contracts (8th
place).

26 http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB17-Report.pdf
27 http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB16-Full-Report.pdf

17
7 F oreign trade

Hungary’s total exports of goods reached EUR 90.46 billion in 2015, which represents a 7.0%
increase compared to EUR 84.51 billion in 2014. After a 4.6% increase, Hungary’s imports of
goods amounted to EUR 81.86 billion last year. Due to the stronger growth of exports, Hungary’s
foreign trade surplus increased by 37.0% to EUR 8.6 billion compared to a surplus of EUR 6.27
billion in 2014. In January to October 2016, Hungary’s foreign trade turnover increased by 1.6%
and reached EUR 146.26 billion. In the first ten months of this year, Hungary’s exports increased
by 2.4% to EUR 77.4 billion, while Hungarian imports reached EUR 68.86 billion after an
increase of 0.7% compared to the same period in 2015. In January to October 2016, Hungary’s
foreign trade surplus was EUR 8.54 billion, which represents a 19.0% increase compared to a
surplus of EUR 7.18 billion compared to the same period in the previous year.

Hu ng ary’s foreign tr ad e in 2014-2016 (EU R b i l l ion) 28

Trade flow Foreign trade

Period Import Export
(exports + imports) balance

2014 78.23 84.51 162.74 6.27

2015 81.86 90.46 172.33 8.60

Change 2015/2014 (%) 4.6% 7.0% 5.9% 37.0%

Jan-Oct 2015 68.40 75.58 143.99 7.18

Jan-Oct 2016 68.86 77.40 146.26 8.54

Change Jan-Oct 2016/Jan-Oct

0.7% 2.4% 1.6% 19.0%
2015 (%)

Source: HCSO

In the first ten months of 2016, Hungary conducted nearly four-fifths of its foreign trade with
the countries of the European Union. In the case of exports, 79.8% of the goods went to EU
countries, while in the case of imports this proportion was 78.3%. The dominance of our most
important trade partner, Germany, still remained: 27.9% of Hungary’s total exports targeted
Germany, while goods from that country accounted for 26.7% of Hungary’s total imports. In
respect of exports, Germany is followed by Romania and Austria with a share of 5.0% and 4.8%,
respectively, with corresponding volumes of EUR 3.88 billion and EUR 3.73 billion. In the case
of imports, Hungary’s second largest partner is Austria with a share of 6.4% and a volume of
nearly EUR 4.44 billion, while the third place is occupied by Poland with a share of 5.5% and a

28 Source: HCSO Dissemination Database, most recent published data: January-October 2016.

18
value of EUR 3.81 billion. Our largest non-European export partner was the United States with
a share of 3.3% and volume of EUR 2.55 billion, while in terms of imports China was our largest
non-European partner with its share of 5.3% and value of EUR 3.66 billion.

H u ng a ry ’ s 1 0 mo st importa n t import a nd e x port pa rt n e r s in

Ja n ua ry to O c to b e r 2016 ( EU R mi l l ion )

Import Export

Country Value Share Country Value Share

Germany 18,365.9 26.7% Germany 21,623.9 27.9%

Austria 4,439.2 6.4% Romania 3,877.8 5.0%
Poland 3,808.8 5.5% Austria 3,729.6 4.8%
China 3,655.0 5.3% Slovakia 3,720.4 4.8%
Slovakia 3,642.3 5.3% Italy 3,707.7 4.8%
France 3,424.0 5.0% France 3,698.3 4.8%
Italy 3,339.2 4.8% Czech Republic 3,193.0 4.1%
Czech Republic 3,338.9 4.8% Poland 3,126.6 4.0%
Netherlands 3,319.4 4.8% United Kingdom 2,981.8 3.9%
Romania 2,120.3 3.1% United States 2,551.2 3.3%

Total imports 68,856.2 100.0% Total exports 77,400.9 100.0%

Source: HCSO

Hungary’s product-level29 foreign trade is dominated by products related to the manufacture of

transport equipment. Of the five most important products, three belong to this sector in respect
of both exports and imports. In the first ten months of this year, Hungary’s most important export
products were passenger cars and other transport equipment. Their exports reached EUR 8.5
billion and accounted for 10.9% of Hungary’s total exports of goods. Parts and accessories for
transport equipment take the second place, while the third most important export products
were spark-ignition internal combustion engines. The volume of the former was EUR 4.6 billion
with a share of 5.9%, while that of the latter was EUR 2.7 billion with a share of 3.5%. In January
to October 2016 our country’s most important import products were parts and accessories for
transport equipment, which accounted for 6.0% of total imports, with a volume of EUR 4.15
billion. This was followed by passenger cars and other transport equipment with an import
volume of EUR 2.1 billion (with a share of 3.1%), while the third place is taken by fixed-line and
digital telephones with a value of EUR 2.0 billion (with a share of 2.9%). It should be noted that
medicaments took fourth place both in terms of export and import, their value being EUR 2.5
billion (3.2%) for exports and EUR 1.96 billion (2.8%) for imports.

29 On the basis of the four-digit breakdown of the Hungarian Combined Nomenclature of the HCSO.

19
M a in e x port a nd import prod u c ts in t h e fir st t e n mon t h s of
2 016 ( EU R mi l l ion )

Main export products Export Share

8703 Motor cars and other motor vehicles principally designed for the
8,475.4 10.9%
transport of persons

8708 Parts and accessories of motor vehicles 4,553.7 5.9%

8407 Spark-ignition reciprocating or rotary internal combustion piston

2,722.5 3.5%
engines
3004 Medicaments put up in measured doses or in forms or in packings
2,484.4 3.2%
for retail trade
8517 Fixed-line /carrier frequency and digital/ telephone and telegraph
2,199.6 2.8%
devices; videophones; parts thereof

Product exports total 77,400.9 100.0%

Main import products Value Share

8708 Parts and accessories of motor vehicles 4,146.4 6.0%

8703 Motor cars and other motor vehicles principally designed for the
2,110.6 3.1%
transport of persons
8517 Fixed-line /carrier frequency and digital/ telephone and telegraph
2,016.7 2.9%
devices; videophones; parts thereof
3004 Medicaments put up in measured doses or in forms or in packings
1,958.6 2.8%
for retail trade
8409 Parts suitable for use solely or principally with internal combustion
1,793.4 2.6%
engines

Product imports total 68,856.2 100.0%

Source: HCSO

20
 8 E mp l oyment

According to the figures of the HCSO, the total number of employees was 4,414,000 in
September to November 2016, which is 142,000 (3.3%) higher than in the same period of the
previous year.30

The number of employed persons included 4,076.0 thousand persons working on the domestic
primary labour market, 220.8 thousand public work scheme participants, and 117.6 thousand
persons working abroad. The domestic primary labour market contributed to the growth with
152.6 thousand employees.

In September to November 2016, 4,364,100 people of the age group of 15 to 64 years, which
represents a population of 6,466,100 were employed. Their employment rate increased by
2.5 percentage points to 67.5%.31 In Q3 2016, the largest employer in the industrial sector,
the manufacturing industry, employed 952,800 persons, and trade and motor vehicle repair,
outstanding among services, employed 550,000. According to the labour force survey data
of the Hungarian Central Statistical Office among the population, the number of employees in
the processing industry increased by 48,000 in aggregate compared to the same period of the
previous year, mainly due to a 25.3%, 14.8% and 8.2% increase in employment taking place in
the sectors of the manufacture of electrical equipment (13,100 persons), the manufacture of
computers, electronic and optical products (11,100 persons); and the manufacture of transport
equipment (11,800 persons), respectively.32

30 http://www.ksh.hu/gyorstajekoztatok/#/hu/document/fog1611
31 http://www.ksh.hu/gyorstajekoztatok/#/hu/document/fog1611
http://www.ksh.hu/docs/hun/xstadat/xstadat_evkozi/e_qlf034.html
32 http://www.ksh.hu/docs/hun/xstadat/xstadat_evkozi/e_qlf005b.html

21
9 U nemp l oyment

The increase in the number of employees was accompanied by a further decrease in the
number of unemployed. According to the figures disclosed by the HCSO, between September
and November 2016 the average number of unemployed persons (as defined in the labour
force survey) was 208,000, 76,000 less than one year before. The unemployment rate fell by
1.7 percentage points to 4.5%.33

In Q3 2016, in a breakdown by the economic branch or sector of their previous jobs, the number
of unemployed with less than eight years of work experience decreased by 29.6% (19,300
persons) in the industrial sector, 32.2% (6,900 persons) in the construction industry and 15.1%
(20,700 persons) in the services sector compared to the same period of the previous year.
By contrast, 8.6% (700 persons) more unemployed were registered among those with work
experience in the agricultural, forestry and fisheries sectors.34

As indicated by the figures of the National Employment Service, by end-November 2016 the
number of registered job seekers decreased by 22.0% (by 77,032 persons) to 273,507 persons
year-on-year. Compared to the previous month this year, the number of registered job seekers
decreased by 4,264 (1.5%).35

According to Eurostat’s seasonally adjusted figures, the average unemployment rate was 9.8%
in the Euro area, 8.3% in the whole EU (28 Member States) and only 4.6%36 in Hungary in
November 2016. The 12.0% unemployment rate of the Hungarian population below 25 years
of age is also better than the 18.8% EU average: the Eurostat registered youth unemployment
of 21.2% in the Euro area, 44.4% in Spain, 46.1% in Greece, and 39.4% in Italy. In the EU-28, both
the unemployment rate and the rate of youth unemployment (among persons below 25 years)
decreased by 0.7% year-on-year in November 2016.37

33 http://www.ksh.hu/gyorstajekoztatok/#/hu/document/mun1611
34 http://www.ksh.hu/docs/hun/xstadat/xstadat_evkozi/e_qlf048a.html
35 http://nfsz.munka.hu/engine.aspx?page=afsz_havi_reszletes_adatok_2016
36 The most recent figures were from October 2016 for Hungary and from September for Greece
37 http://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics

22
Un e mp loy m e n t r at e (%), N ov e m b e r 2016

0 5 10 15 20 25

Iceland 2.8
Japan 3.1
Czech Republic 3.7
Germany 4.1
USA 4.6
Hungary** 4.6
Malta 4.8
United Kingdom* 4.8
Norway** 4.8
Netherlands 5.6
Romania 5.7
Austria 5.8
Poland 6.0
Luxembourg 6.2
Denmark 6.5
Sweden 6.8
Bulgaria 7.1
Ireland 7.3
Estonia** 7.4
Belgium 7.6
Slovenia 7.6
Lithuania 7.9
EU (28) 8.3
Finland 8.8
Slovakia 9.0
France 9.5
Latvia 9.6
Portugal 10.5
Croatia 11.4
Turkey* 11.4
Italy 11.9
Cyprus 14.2
Spain 19.2
Greece* 23.1

*: September 2016,
** October 2016
Source: Eurostat

23
10 W ages , sa l aries

In January to October 2016, gross average earnings increased by 6.0% on a year-on-year basis.
The increase resulted, inter alia, from the 5.7% raise in the minimum wage and the guaranteed
wage minimum as well as the increase of salaries in the armed forces and the supplementary
benefit paid to employees in social fields. The net earnings rose by 7.6% due to a 1-percentage-
point decrease in the personal income tax rate. The average gross pay of full-time employees
was HUF 258,300 at the level of the national economy. The average gross earnings were the
highest in the economic branch of financial and insurance activities (HUF 511,700) and the lowest
in the area of human health care and social care (HUF 151,700). The average net pay (calculated
without the family tax allowance) was HUF 171,800 at the level of the national economy. Without
the average pay figures of public work scheme participants, wages and salaries increased
by 6.4% in the national economy, and within that, by 5.3% in the business sector. In the first
ten months of 2016 the average monthly gross earnings of public work scheme participants
working full-time was HUF 78,800, representing a 1.3% decrease year-on-year.

In the first seven months of 2016, the average gross monthly income from work was HUF
271,600 at the level of the national economy, within which the proportion of other income from
work accounted for 4.9% on average.38

38 http://www.ksh.hu/docs/hun/xftp/gyor/ker/ker1610.html

24
11 Labour costs and
minimum wage
In 2017 the rate of the social contribution tax payable by employers has been reduced from the
27% in 2016 to 22%, to be further reduced to 20% in 2018. Tax allowances are available in the
instances specified in law, such as in respect of persons employed in positions not requiring
special qualifications, participants of the Carrier Bridge programme, entrepreneurs with
altered working capacity, employees below 25 or above 55 years of age, long-term job seekers,
recipients of child care benefits, entrepreneurs and researchers operating in free enterprise
zones. The allowance is calculated monthly based on gross salaries but not exceeding HUF
100,000 per person per month (in the case of researchers, HUF 200,000 or 500,000 per
person depending on their academic degrees), at the rate of the effective social contribution tax
or 50% thereof.39

Contributions payable by employees have not been changed as of 2017; the pension contribution
remained 10%, the in-kind health insurance contribution 4%, the cash health insurance
contribution 3%, and the labour market contribution 1.5%.

While in 2016 the minimum wage and the guaranteed wage minimum, for employees working
in position requiring at least secondary school or secondary vocational qualifications increased
by 5.7%,40 from 1 January 2017 the minimum wage for full-time employees has been increased
by 15% to HUF 127,500 (from HUF 111,000), and the guaranteed wage minimum of persons
employed in positions requiring at least secondary vocational qualifications by 25% to HUF
161,000 (from HUF 129,000).41

In addition to the social contribution tax, employers are also required to pay a vocational
training contribution, at the rate of 1.5% of the vocational training contribution base. The base
of the vocational training contribution, which is the same as the base of the social contribution
tax, may be reduced by the gross wage of persons employed with the conditions and in the
scope specified in law up to the amount of HUF 100,000/month/person (for instance: career
starters, long-term job seekers, recipients of child care benefits, new employees working in free
enterprise zones). The gross wage of those researchers in respect of whom the employer makes
use of a social contribution tax allowance may also be deducted from the base of the vocational
training contribution (up to HUF 500,000/person/month).42

39 Act CLXXXII of 2016, Sections 27 and 28 (Vol. 210 of 2016 of the Official Gazette of Hungary) and Act CLVI of 2011, Sections 461(2), 462(3), 462/A(2), 462/B(2) and (3),
462/C(2), 462/D(2) and (3), 462/E(2),462/F(1) and (2)
40 Government Decree 454/2015 (XII. 29.) Korm.
41 Government Decree 430/2016 (XII. 15.) Korm.
on the calculation of the minimum mandatory wage (minimum wage) and the guaranteed wage minimum
42 Act CLV of 2011, Section 4(1a) and(1b)

25
11 Labour costs and
minimum wage

The vocational training contribution requirement may be also met, up to the state-subsidised
number, by providing practical training in the framework of work experience schemes, under a
student work contract or cooperation agreement with vocational training schools or a student
contract concluded with a student of a vocational school. Employers meeting the vocational
training contribution by way of providing practical training may reduce their gross payment
obligation with an amount calculated based on the practical training normative amounts, in
accordance with the basic normative amount specified in the central budget for the year.43 The
basic normative transfer specified in the central budget is HUF 453,000/person/year in 2017.
Undertakings participating in work experience schemes may reduce their vocational training
contribution substantially in 2017. The deduction is the normative transfer per day multiplied by
the number of training days spent at the undertaking. In 2016, the daily amount of the practical
training normative transfer applicable to companies participating in the organisation of
practice-intensive bachelor-level education must be calculated by dividing the basic normative
transfer by 100; the same applies to work experience schemes. From 1 January 2017, the daily
amount of the practical training normative transfer per student must be calculated by dividing
the basic normative transfer (HUF 453,000) by 75 in the bachelor-level social worker education
and in economic sciences, and by 56 in the field of technical, IT, agricultural and natural science
education, thus the normative transfer per day (instead of HUF 4,530/day/person) is HUF
6,040/day/person or HUF 8,089/day/person, respectively.44

43 Act CLV of 2011 on the vocational training contribution and the development of vocational education (Sections 5 and 8(1)(b) and Government
Decree 280/2011 (XII.20.) Korm.
44 Government Decree 340/2016 (XI. 17.) on the amendment of Government Decree 280/2011 (XII. 20.) and Government Decree 280/2011 (XII. 20.), Section 6
http://www.dualisdiploma.hu/news/article/novekszik-a-dualis-kepzesben-reszt-vevo-partnerszervezetek-kepzesi-tamogatasa

26
12 E ducation and
q ua l ifications

As of 1 February 2017, of the 66 state-recognised institutions of higher education, 29 are classified

as universities, 7 as universities of applied sciences and 30 as colleges; these institutions of
higher education are listed in Annex 1 to Act CCIV of 2011 in national higher education. Pursuant
to the law, universities are entitled to provide education in at least eight bachelor and six master
programmes, while the requirement for universities of applied sciences is at least four bachelor
and two master-level programmes. If the authorisation of the latter covers the educational
fields of technology, IT, agriculture, natural sciences or economic sciences or social work
programmes, it may also offer work experience schemes in at least two programmes.45 Work
experience schemes are becoming increasingly common in Hungarian higher education. The
range of Hungarian institutions of higher education offering work-experience schemes and of
their partner undertakings has been expanding since the introduction of the scheme in 2012.
In the 2016/2017 school year, 24 higher education institutions offer work-experience schemes
in 41 bachelor and 11 master programmes, with the involvement of 593 partner organisation.46

In the territory of Hungary, 29 authorised foreign higher education institutions were allowed to
provide higher education services on 1 December 2016.47

Prepared by: Department of Analysis, HIPA

Budapest, 9 January 2017

45 Act CCIV of 2011

46 http://eduline.hu/felsooktatas/2016/12/5/dualis_kepzes_interju_WZAMME
47 http://www.kormany.hu/download/b/db/e0000/Kulfoldi_intezmenyek_Mo-on_20161201.pdf#!DocumentBrowse

27
2014 2015 2016

28
Impressum

Published and distributed by

Hungarian Investment Promotion Agency
H-1055 Budapest, Honvéd utca 20., Hungary
+36 (1) 872 6520
press@hipa.hu
www.hipa.hu

Managing publisher:
Róbert Ésik
President

Managing editor:
Béla Király
Head of Communications Department

Chief Analyst:
Ákos Dani
Head of Economic Analysis Department

Date of finalisation of the manuscript:

9 January 2017

The tables, graphs, data and text in this publication do not constitute an offer. They all originate, either in part or in full, from
surveys, which do not fall within the scope of Act XLVI of 1993 on statistics and are therefore not deemed official statistical
data. The Hungarian Investment Promotion Agency (HIPA) prepared the contents, data and text of the publication with due
care, yet neither HIPA nor any third party takes any responsibility for any errors in the text, content, data or interpretation
and/or any consequential direct, indirect financial or other damage. HIPA does not take any responsibility for any damage or
disadvantage caused by any third party as a result of his/her reference to the content of the publication. Any further utilisation
and edition of this publication is subject to the prior written approval of HIPA exclusively providing that the name of HIPA and
the source(s) are indicated properly.

© Hungarian Investment Promotion Agency

29
Hungarian Investment Promotion Agency
1055 Budapest, Honvéd Street 20.
+36 1 872 6520
info@hipa.hu
www.hipa.hu

30