More Good News On The Hungarian Economy For Budapest Property Investors

Budapest property investors have just received more good news proving that Hungary’s economy is firmly back on its long-term path of sustainable and stable growth.

This good news for Budapest property investors comes in two forms. Firstly, December 2007 figures on the budget deficit show that it has been dramatically slashed by a remarkable 4% of gross domestic product (GDP). Secondly, one of the country’s leading independent economic research houses, GKI, in conjunction with Erstebank Research, is now forecasting that economic growth in 2008 will bounce back much quicker than previously expected.

Official data shows Hungary recorded a budget deficit of around 5.7% of GDP in 2007. Now, whilst still relatively high, it must be remembered that one, the government’s prediction at the start of 2007 was for a deficit of 6.8%, and, two, that the 2006 figure stood at a whopping 9.2% of GDP. Thus, the reduction is a remarkable achievement, and furthermore, Hungary’s finance minister said last week Hungary would be able to cut the deficit to around 3.0% of GDP in 2009. More details please

So, why is this important to property investors? Simply, it is because your existing, or potential, investment in property in Budapest is intrinsically tied to the performance of the Hungarian economy.

In layman’s terms, the budget deficit is the difference between what the government spends – investment in infrastructure, health, education, etc – versus what it earns – tax receipts etc. Running a deficit of 9% a year, as was the case, meant in short that the government was spending a lot of money it did not have. To reduce this deficit to a manageable level, public spending was cut and taxes rose.

After a year of such belt tightening, the rewards are tangible and the budget shortfall is now on course to meet the 3% level as prescribed by the Maastricht Criteria, thus allowing Hungary to begin the process of adopting the Euro. Your investment has much more growth potential, and considerably less risk, with Hungary inside the Eurozone and its economy growing at a stable rate each year.

And just as a falling budget deficit is good for your investment in Budapest property, the same goes for rising economic growth. In 2007, economic growth in Hungary slowed, owing to the reduction in spending undertaken to reduce the deficit. Now, with the deficit reduction on the right track, the outlook for growth is optimistic. As opposed to the government’s conservative forecast of growth of 2.8% in 2008, GKI and Erstebank reckon that next year’s growth is more likely to be 3.5% or even higher. By way of comparison, the UK economy grew at around 2.7% in 2007, and is forecast to slow in 2008 to just over 2%, whilst the Eurozone area growth stood at 2.8% in 2007, and is forecast to fall to under 2% in 2008.

Again, how does this impact on your investment? Again the answer is simple – an investment in property in a booming economy is a sound investment – the more economic growth rises, the more your investment goes up in value, all other things remaining equal. It is these positive long-term trends in the Hungarian economy that make investing in property in the country, and particularly in Budapest property, such a good, and relatively risk free, opportunity.

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