Before World War II, the economy of Hungary was based primarily on agriculture. What little industry the country had was almost entirely destroyed during the war. After the Communists took power in 1948, the Hungarian government took control of the economy and set forth a series of long-range economic development plans in which the emphasis was on industrialization, particularly the development of heavy industry. However, these plans were not well matched with Hungary’s resources and capabilities, and the new industries were not able to meet the government’s high production goals. In the late 1950s and 1960s the government was forced to readjust its plans and place more emphasis on agriculture and the manufacturing of consumer goods. In 1968 the government introduced an economic reform program known as the New Economic Mechanism (NEM), which allowed for limited decentralization of the economy. The first years of the NEM were considered a success; the production of consumer goods rose, and Hungarians experienced a substantial improvement in their standard of living. However, opposition among Soviet and Hungarian Communist leaders prevented the full development of the program and the NEM ended in the 1980s.
After 1989 Hungary's emerging market and parliamentary systems inherited a crisis-ridden economy with an enormous external debt and noncompetitive export sectors. Hungary turned to the world market and restructured its foreign trade, but market competition, together with a sudden and radical opening of the country and the abolition of state subsidies, led to further economic decline. Agriculture was drastically affected and declined by half. A large portion of the iron, steel, and engineering sectors, especially in northeastern Hungary, collapsed. Industrial output and GDP decreased by 30 percent and 25 percent, respectively. Unemployment, previously nonexistent, rose to 14 percent in the early 1990s but declined after 1994.
Hungary continues to demonstrate strong economic growth and to work toward accession to the European Union. The private sector accounts for over 80% of GDP. Foreign ownership of and investment in Hungarian firms is widespread, with cumulative foreign direct investment totaling $23 billion by 2000. Hungarian sovereign debt was upgraded in 2000 to the second-highest rating among all the Central European transition economies. Inflation - a top economic concern in 2000 - is still high at almost 10%, pushed upward by higher world oil and gas and domestic food prices. Economic reform measures such as health care reform, tax reform, and local government financing have not yet been addressed by the ORBAN government.
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