Orban banks on Hungary's 'fairy tale' economy for re-election

As Hungarian Prime Minister Viktor Orban runs for re-election next weekend  he has been trumpeting an economy that appears to be doing rather well -- at first glance. The central European former communist country emerged from recession last year, with output expanding a healthy 1.2 percent and forecast to grow by 2.0 percent in 2014. Unemployment, at 8.9 percent, is at a five-year low while inflation -- in 2012 one of the highest in the European Union -- has slowed to levels not seen for more than four decades. This has enabled the central bank to keep cutting interest rates, whereas in some other emerging economies including South Africa and Turkey borrowing costs have begun to rise. Sweeping to power in 2010 after eight years of Socialist rule that saw Hungary become the most indebted country in central Europe, Orban declared a war on debt. He has brought the budget deficit to under the three-percent EU limit, and set about rebuilding the country's manufacturing sector. "If we continue like this, by the end of the 2018 election cycle, it seems a realistic target for us to become the most industrialised country in Europe," Orban, 50, said in a recent interview. Next Sunday, April 6, Hungarian voters will have their say at a general election. - Flip side - But what Orban's economy minister called the "fairy tale" also has a darker side that the rosy headline numbers fail to tell, experts say. The economy has been boosted, like others in the region, by improving global conditions, including in the eurozone, and in particular by a bounteous agricultural harvest last year. The underlying performance is in fact not strong, since Hungary "lacks the resources to achieve dynamic growth", economist Eva Varhegyi from the Financial Research institute told AFP. Apart from certain German automakers like Audi and Daimler with factories in Hungary, Orban has failed to attract enough foreign investors, critics say. At 16 percent of GDP, "the level of investments is insufficient to maintain the current level of production and is far from the 25 percent needed ... longer-term," said Sandor Jobbagy, an analyst at CIB in Budapest. Orban, leading in polls ahead of the elections, has also spooked investors with special levies on sectors such as telecoms and in particular banks, which has helped him bring down the deficit. Hungary's debt level also remains the highest in the region despite a nationalisation of private pension funds. Nationalist rhetoric -- like wanting to "defend Hungarian families from the monopolies, the cartels and the bureaucrats" of the EU -- has also not helped endear him to foreign companies. Inflation, meanwhile, is only so tame because Orban's right-wing government last year ordered utility firms, many foreign-owned, to slash gas and electricity bills by 20 percent. Posters trumpeting the cuts -- the latest will take place just before the election -- are plastered over Budapest's billboards, trams and buses ahead of the vote. "For people like me every little saving counts, I can't understand how anyone could not like that," pensioner Katalin Hamori, 65, told AFP. But this vote-winner contrasts with other policies like a hike in value-added tax (VAT) to 27 percent, the highest in the EU, and a new 16-percent flat tax that many experts say hits the poorest hardest. According to a March report by the OECD, disposable income is among the lowest of OECD members, with 30.6 percent of Hungarians reporting they are unable to buy food, compared with an OECD average of 13.2 percent. The drop in unemployment, meanwhile, is thanks to another controversial liberal policy, "workfare", making people work for welfare benefits, often in menial tasks like sweeping the streets.