Hungary

Hungary has a high-income mixed economy which continues to be one of the leading nations in Central and Eastern Europe for attracting foreign direct investment.

Major industries include food processing, pharmaceuticals, motor vehicles, information technology, chemicals, metallurgy, machinery, electrical goods, and tourism.

In the past 20 years Hungary has also grown into a major centre for mobile technology, information security, and related hardware research.

It is the largest electronics producer in Central and Eastern Europe. Electronics manufacturing and research are among the main drivers of economic growth in the country.

Its productive capacity is more than 80 per cent privately owned. Around 39pc overall taxation funds the country’s welfare economy. Household consumption is the main component of gross domestic product which accounts for 50pc, followed by gross fixed capital formation (22pc) and government expenditure (20pc).

The global economic downturn, declining exports, and low domestic consumption and investment, dampened by government austerity measures resulted in a severe economic contraction in 2009 when the country suffered negative GDP growth at 6.6pc, one of the worst economic contractions in its history.

In 2010, the government implemented a number of changes including cutting business and personal income taxes, but imposed crisis taxes on financial institutions, energy and telecom companies, and retailers but GDP grew by just 0.7pc.

However, the economy managed to show signs of recovery in 2011 with decreasing tax rates and a moderate 1.7pc GDP growth. After declining by 1.6pc in 2012, GDP picked up again from 2014.

Based on the European Commission’s data the 2015 growth accelerated to 3.3pc, attributable to a moderately growing domestic demand supported by gross fixed capital formation growth.

But from the beginning of 2016, the economy started to show signs of slowing. Significantly shrunk base of available EU funds adversely impacted the country’s performance. Real growth thus decelerated to 2pc in 2016, mainly a result of reduced EU fund absorption which caused a sharp drop in fixed investment by 15.5pc.

According to the Hungarian Central Statistical Office’s latest report, GDP was up by 3.2pc year-on-year in the second quarter against 3.7pc in the first quarter, mainly driven by the market services sector.

The improved performance is attributable to recently implemented projects financed from funds made available in the EU programme for 2014-20.

In the second quarter of 2017, the volume of investment grew by 27pc year-on-year while exports expanded by 6.5pc. Coupled with robust growth registered in the previous quarter, the investment volume in the first half of 2017 was up 25pc.

Following the period of successful crisis-management, the Hungarian economy has regained its macro-economic balance and subsequent pro-growth measures enabled the economy to enter a stable growth path.

The economy is expected to grow faster in the second half of 2017. Citing the expected boost in employment, growth and consumption following a six-year wage agreement signed one month earlier, the Hungarian Ministry for National Economy is confident to achieve 2017 GDP growth of 4.1pc and projected a further slight acceleration in the in 2018 growth rate to 4.3pc.

Poland

It is the sixth-largest economy in the European Union and classified as a high-income economy by World Bank.

According to the Central Statistical Office of Poland, in 2010 the Polish economic growth was 3.9pc, one of the best in Europe. It grew further by 3.3pc in 2014 and 3.8pc in 2015.

Although in 2016 economic growth sharply slowed to 2.7pc, the government stimulus measures combined with a tighter labour market in late 2016 kick-started new growth.

Though Polish economic growth slowed down slightly in the second quarter of 2017, decelerating slightly from first quarter growth of 4pc year-on-year rise, the GDP expanded 3.9pc over the same period in 2016, fuelled by solid gains in private consumption and sharp fall in unemployment since the beginning of the year.

The economic fluctuations of the business cycle did affect Poland’s unemployment rate, which had reached almost 11pc by early 2013 but started falling subsequently. In 2017, the unemployment rate is set to fall to a new record low, reaching 4.4pc.

According to the Statistical Institute, the deceleration in second-quarter GDP came on the back of a weaker performance by the external sector, but still represents a solid expansion. Growth is projected to accelerate to 3.6pc in 2017 and remain strong in 2018.

FocusEconomics panellists expect GDP to grow 3.8pc in 2017 and 3.4pc in 2018.

The EU Commission is of the view that the economy has been undergoing a growth spurt in response to robust domestic demand and a recovery in investment after a slow 2016. GDP growth is expected to rebound to 3.5pc in 2017, before slowing slightly to 3.2pc.

According to the World Bank, Poland’s economic growth is expected to accelerate to 3.3pc in 2017, compared to 2.8pc in 2016, supported by stronger investment and consumption. Growth is expected to remain broadly stable at 3.2pc in both 2018 and 2019.

The IMF projects GDP growth to accelerate to 3.6pc in 2017 and remain strong in 2018, though slightly lower at 3.3pc. The economy is picking up because of new investments funded by the EU. The Ministry of Finance is more optimistic, forecasting the real GDP growth of 3.8pc to 3.9pc in 2018-20, on sustained strong investment growth.

Published in Dawn, The Business and Finance Weekly, October 9th, 2017