Michelin delays investment in Hungary image

Michelin, the tire manufacturer based in Clermont-Ferrand – France, on Tuesday said it is putting plans to expand its manufacturing capacity in Hungary on hold because of the uncertain economic environment, business daily Vilaggazdasag reports.

Michelin Hungaria managing director John Young said going ahead with the planned capacity expansion, which would create a significant number of jobs, had come into question because new taxes and new laws do not make the economic environment in Hungary predictable.

Back in December, the Hungarian government decided to increase its standard VAT rate by 2%, from 25% to 27% — making it the highest in the European Union.

The hike, which was authorized by Brussels, only affects the country’s top VAT rate, while reduced rates for basic food products remain at 18 percent and for books and newspapers, among other things, at five percent.

The rate increase, along with several other taxes introduced in 2011, “will entail a significant increase in inflation” to five percent in 2012, according to the central bank’s latest Report on Inflation published mid-December.

Hungary, which became the first EU country to receive an IMF-led bailout in 2008, shunned fresh aid in 2010 when Orban became prime minister. He reversed his policy last year when the state started struggling to raise funds at debt auctions, the forint plummeted and the country’s sovereign-credit grade was cut to junk.