Before Orbán came into power, the 2008 crisis hit Hungary. In 2009, the GDP of the country contracted by 6.6% in accordance with the global recession of 2008. Hungary was much more affected by the recession than its neighbors, Poland and Czech Republic. Thus, Orban’s goals were mainly fighting the recession when he arrived in power. In 2010, when Fidezs took the National Assembly, Orbán waged what he referred to as an “economic fight for freedom”. He basically implemented ambitious economic reforms unprecedented in all Central Europe since the transition from Soviet central planning.
Orbanomics following the 2008 crisis
According to Orbán, there are four main pillars of the economy: competitiveness, a workfare society, good demographics and identity-based politics. However, his approach to the economy, filled with unorthodox moves and nicknamed Orbanomics, has been widely criticized. Orbán’s general nationalism is clearly shown within his ideological approach to the economy, and his policies follow this trend. However, besides nationalism, the policies implemented by Orbán are conflicting with his general right-wing ideology, as they seem more left-leaning and objective oriented. The main aims were crisis management, fostering domestic ownership, and promoting foreign direct investment.
The first aim was recovering the Hungarian economy from the 2008 crisis. In order to solve the debt to GDP ratio of 78% that Hungary endured. Orbán ignored IMF policy recommendations to continue to curve public spending. However, in order to stay in line with the conditions of the IMF 2008 bailout terms given to Hungary, Orbán introduced special taxes to corporations in selected sectors and a new taxing scheme. His second aim was increasing domestic industry. Given that Orbán has always been critical of privatization, he bouched for the nationalization of certain private companies in sectors he deemed as strategic for the economy. These sectors include oil, gas and power. Energy dependency has long worried Orbán.
Finally, in order to achieve his last goal of promoting foreign direct investment, part of the economic policy of Orbán’s government involved making Hungary attractive to FDI. Fidesz formed strategic partnership agreements with Western companies already present in Hungary, such as Audi, General Electric and Coca-cola. His policies have paid off. Hungary maintains the highest per capita stock of FDI for Central and Eastern Europe. According to an UNCTAD Report, the main investors in the country are Germany, the Netherlands, Luxemburg, Ireland, the US, France and South Korea. In 2018 alone, 98 major investments came to Hungary, especially from Asian countries, a shift that pleased Orbán.
International trade and Foreign Pals
Hungary, under Orbán, is very open to international trade. Not only is the country the 35th largest exporter economy, but foreign trade accounts for 166% of the GDP, with cars and the spare parts industry accounting for the largest share. Medicine and data processing machines are also among the main exports, with electronics and petroleum being the largest imports. This export orientation has allowed the country to enjoy important trade surpluses. However, since 2018, the surplus has narrowed as imports grow faster than exports. In terms of trading partners, Orbán has a lot to thank for the European Common Market. The EU is the largest economic partner, specifically Germany, followed by Slovakia, Italy, Romania and Austria.
However, an important plan of Orbán´s economic policy was reducing the dependency with the West and increasing commerce with countries in Asia, particularly China. In order to do so, the Prime Minister set up a series of bilateral Economic Mixed Committees and Hungarian Trading Houses around the world. However, and looking directly at China, Orbán has placed most of his focus in the 16+1, an multilateral alliance promoted by Beijing formed by Central and Eastern European countries and China. This project falls within the massive expansion of economic ties and investment in infrastructure envisioned by Xi. It also involved massive amounts of credits flowing from the China Development Bank to the Hungarian Development Bank in April of 2012. Additionally, China financed a high-speed railway linking Liszt Ferenc Airport and the Eastern Railway in Budapest in 2013. This makes the EU restless as it could serve as a crucial entry to Western Europe for the Belt and Road Initiative, Xi´s golden project.
Outcome and Recent Trends
Since 2010, when Orbán took office, the economic outlook of the country has improved steadily. Unemployment went from 12% in 2010, to 3,8% in 2018. GDP has grown over 11 points and real wages have grown while inflation remains modest. FDI is also record breaking. One of his main goals, which was reducing public debt, came close to being achieved before COVID 19 hit, halting the debt by half. Overall, the orthodox policies, more left-leaning than expected, pursued by Orbán and Fidezs seem to have helped the overall economic performance of Hungary. However, as the economy faces the biggest pandemic of the decade, Orbán has applied a stimulus package that involves the sale of 4 billion EUR in Eurobonds this year. While he usually refrains from utilizing international debt, the situation requires it.