By Smartencyclopedia with agencies
In recent data released by Eurostat, Hungary’s per capita GDP, measured at purchasing power parity, reached 76.6% of the EU average in 2022, but it fell slightly behind its eastern neighbor, Romania, with a gap of 0.1 percentage points. This development is noteworthy and comes as Hungary is grappling with economic challenges that may further exacerbate the divide between the two countries in 2023.
In 2022, Romania made significant progress toward catching up with the EU average, with a remarkable increase of 2.9 percentage points compared to Hungary’s growth of 1.8 percentage points.
When compared to other Central and Eastern European (CEE) countries, GDP per capita at purchasing power parity was 92% of the EU average in Slovenia, 91% in Czechia, and 79% in Poland, reflecting a diverse economic landscape in the region.
Over the last nine years, Hungary has indeed made progress in narrowing the gap with the EU average but at a notably slower pace than Romania. Hungary’s GDP per capita increased by 8.5 percentage points, while Romania’s economy demonstrated a much faster convergence rate, exceeding 22 percentage points.
These statistics raise concerns as Hungary seems to be losing ground to its CEE peers. This development could be viewed as a challenge to the government of Viktor Orban, known for its radical right-wing policies, especially since Romania was historically seen as the less affluent neighbor. Hungary’s leadership, including the central bank, had set ambitious goals to close the economic gap with Austria by 2030.
As per a former central bank governor, Akos Peter Bod, Gross National Income (GNI) is considered a more accurate indicator of living standards than GDP, especially in countries with high export-to-GDP ratios and strong foreign direct investment (FDI) inflows. The data also reveals a concerning aspect: when it comes to consumption per capita, Hungary ranks second to last, just above Bulgaria, with a consumption level at 70% of the EU average.
Hungary’s recent economic growth between 2015 and 2019 was attributed to the influx of EU funds and low interest rates. The government took credit for this period, which included double-digit real wage growth. Gyorgy Matolcsy, the governor of the National Bank of Hungary (MNB), went as far as calling the years between 2010 and 2020 the most successful in the country’s history. Hungary’s aim to reach 100% of the EU average by 2030 seems challenging, requiring an annual growth rate that exceeds the EU average by 3.5 percentage points, according to MNB’s policy recommendations post the 2022 elections.
Meanwhile, Romania appears set to experience economic growth above most of its CEE peers in 2023, despite a potential slowdown to 2.0-2.5%. This is attributed to EU funds and the strong performance of the agriculture sector. Unlike Hungary, Romania has faced fewer hurdles in accessing EU funds, including those from the Recovery and Resilience Facility (RRF) and the EU’s cohesion funds for the 2021-2027 budget. According to the International Monetary Fund (IMF), the combined utilization of the seven-year EU budget and the RRF is expected to reach 1.7% of Romania’s GDP in 2023, increasing to 2.3% in 2024 and 3% in 2025.
As Romania surges ahead and Hungary faces economic challenges, the gap between these two neighboring countries continues to widen, with significant implications for both nations’ economic and political landscapes.