Investment Ebb and Flow in the Hungarian Economy
Professor Emeritus, University Professor, Scientific Consultant, State Audit Office of Hungary
Published in: Public Finance Quarterly 2015/2 (p. 147-170.)
SUMMARY: This study is intended to demonstrate that the downturn in fixed capital formation and investment surpassed the decline in GDP; among the OECD countries Hungary witnessed the 9th largest shortfall of the investment rate compared to pre-crisis levels. The growth rate of Hungarian working capital outflows surpassed that of FDI inflows. The service fee payment of PPP investment contributed to the budget deficit by around 0.5 per cent of GDP per annum. The structure of whole-economy fixed investment underwent a considerable transformation: manufacturing saw a spectacular expansion, while the share of public administration and water supply grew to a lesser degree. The contribution of real estate, electricity and gas supply, education and transportation decreased markedly. The structural changes in public sector investment are reflected in the output of fixed capital formation, which increased by 2.1 in the central budget and by 12.3 per cent at local governments. The total amount of investment grants doubled in the period between 2009 and 2013. In the sector of non-financial corporations, the ratio of grants to GDP rose to 1.3 per cent in 2011, 1.4 per cent in 2012, and 1.9 per cent in 2013 compared to 1.2 and 1.1 per cent in 2009 and 2010, respectively. Besides net EU transfers, the expansion of grants was also an important contributor to the upswing in investment activity in 2013–2014.