Hungary’s strong manufacturing sector and recent capacity expansion has turned it into a competitive exporter. As a member of the EU, Hungary benefits from relatively well developed institutions. Nevertheless, increasingly populist government policy has weighed on the business environment, while the country’s domestic demand recovery will trail that of its Central European peers due to a crippled banking sector and soft external demand.

We keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 19 of Hungary’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert teams. We aim to keep you ahead of the curve, so you can do business with ease in Hungary.

Country Risk

Hungary Country Risk

BMI View:

Core Views

  • Hungarian real GDP growth is poised to decelerate modestly in 2016 mainly due to weaker EU fund disbursements. However, private consumption and strengthening external demand will remain key drivers of economic activity, reflected in our forecast for real GDP growth to expand by 2.6% in 2016, and 2.7% in 2017, slightly lower than the 2015's full-year outturn of 2.9%.

  • Hungary's sovereign risk profile will continue to improve despite modest tax cuts planned for 2016, as a strong economic outlook, and low interest payments keep the budget deficit contained and public debt on a narrowing trajectory. In addition, public finances have become less vulnerable to external shocks due to the government's policies aimed at reducing external and FX-denominated debt, further boosting Hungary's sovereign risk profile.

  • ...

Hungary Operational Risk Coverage (9)

Hungary Operational Risk

BMI View:

BMI View: Businesses considering entering Hungary will benefit from strong legal frameworks that support and protect international companies, as well as minimal trade barriers, a sophisticated financial sector and efficient online bureaucracy. The key downside risks include an uncompetitive tax regime which is discriminatory in some cases, tight controls on foreign currency loans and high national indebtedness. The government has however signalled that it would lower taxes and Hungary remains a low risk investment choice, with net capital inflows through direct and portfolio investment channels.

Open trade and investment policies have been a key driver of economic growth in Hungary over the last 20 years, stimulating high levels of foreign direct investment (FDI) and large volumes of international trade. In particular, the development of a sophisticated manufacturing industry has resulted in...

Hungary Crime & Security

BMI View:

BMI View: Investors in Hungary benefit from strong political stability and minimal risks of violent activity. Peaceful relations with neighbouring states and membership of international organisations mitigate the risks posed by interstate conflict. The terrorist threat is also low, as there are no international groups known to be operating in the country. Moreover, given the lack of great power status, Hungary is at low risk of becoming a target for a terrorist attack. One of the biggest risks posed to foreign businesses is from financial crime and fraud, with criminal gangs gaining traction in the formal economy. Taking these factors into consideration, we award Hungary a score of 64.7 out of 100 in BMI's Crime and Security Risk Index, which places the country 10th out of 31 Emerging Europe states and 55th out of 201...

Hungary Labour Market

BMI View:

BMI View: Hungary's labour market faces several key challenges which will reduce the country's competitiveness and weigh on economic growth in the long term. The major risks stem from the limited availability of suitable workers in key industries such as manufacturing. This has mainly been driven by the inability of the education system to produce graduates with skills required by businesses, the emigration of talented Hungarian workers to countries with higher wages, and the difficulty attracting foreign workers. Consequently, businesses based in Hungary face higher costs to recruit for specialised positions in sectors such as automotives manufacturing, finance and technology. These risks are not sufficiently offset by the country's strong basic skills, flexible labour laws, and highly urbanised workforce. Consequently, Hungary receives a score of 54.6 out of 100 in...

Hungary Logistics

BMI View:

BMI View: Hungary offers a generally attractive logistics networks for investors, with reliable utilities provision and extensive transport infrastructure. The risk of disruption to business activities is low, and trade with key partners is facilitated by membership of the European Union (EU), which means that bureaucratic and customs barriers are minimal. The main concerns for investors will be the high costs of utilities and overreliance on the road network for freight transport, but these risks do not undermine the overall appeal of Hungary's logistics infrastructure and trading environment. Consequently, Hungary places above the regional average in BMI's Logistics Risk Index, scoring 60.3 out of 100 and ranking 13th out of 31 countries in the Emerging Europe region, between Slovakia and Russia.

Developed Logistics Network Favourable To Businesses...

Hungary Trade & Investment

BMI View:

BMI View: Businesses considering entering Hungary will benefit from strong legal frameworks that support and protect international companies, as well as minimal trade barriers, a sophisticated financial sector, and efficient online bureaucracy. The key downside risks include an uncompetitive tax regime which is discriminatory in some cases, tight controls on foreign currency loans, and high national indebtedness. The government has however signalled that it would lower taxes and Hungary remains a low risk investment choice, with net capital inflows through direct and portfolio investment channels.

Open trade and investment policies have been a key driver of economic growth in Hungary over the last 20 years, stimulating high levels of foreign direct investment (FDI) and large volumes of international trade. In particular, the development of a sophisticated manufacturing industry has resulted in...

Hungary Industry Coverage (20)

Autos

Hungary Autos

BMI View:

Key Views

  • Commercial vehicle sales have been outperforming those of passenger cars over 2015 against a slowing macroeconomic backdrop.

  • Hungarian auto production remains dominated by three manufacturers, Magyar Suzuki, Daimler and Audi Hungaria.

  • One potential near-term headwind facing the local production sector comes from the ongoing emissions scandal engulfing automaker Volkswagen. Around 2mn out of the 11mn diesel engines affected by the scandal were reportedly produced at Audi Hungaria.

  • On the sales side, it also remains to be seen what effect the ongoing emissions scandal facing Volkswagen will have on the sales of its VW, Audi, Seat and...

Commercial Banking

Hungary Commercial Banking

BMI View:

...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

Consumer Electronics

Hungary Consumer Electronics

BMI View:

BMI View: Although macroeconomic challenges will continue to be a drag on the consumer electronics devices market in Hungary in 2016, we envisage a much stronger growth trajectory from 2017, enabled by significant appreciation of the forint against the US dollar. We forecast device spending will increase at a CAGR of 6.7% throughout 2016-2020 to USD2.2bn, as households make purchasing power gains. This should unlock pent-up replacement spending from 2015-2016, and also has upside for average device prices in global currency terms as affordability in local currency terms increases throughout 2017-2019....

Defence & Security

Hungary Defence & Security

BMI View:

BMI View: Hungarian defence spending remains relatively modest compared to the Europe region as a whole, and has declined as a percentage of GDP over the last decade, reflecting the country's stable security environment. We currently forecast the defence budget to remain around 0.9% of GDP in 2016, declining 1.6% y-o-y to USD1.08bn; however, we note that this figure may be revised upwards should the government take action towards realising plans for improving conditions for armed forces personnel; increase participation in peacekeeping missions, expand military infrastructure or procure new equipment and maintain a strong security presence at borders amid the ongoing migrant crisis. With a reasonable economic growth forecast over the medium term, and Hungary's commitment...

Food & Drink

Hungary Food & Drink

BMI View:

Latest Updates

  • Total food consumption value (local currency) growth y-o-y in 2015: +4.7%; compound annual growth rate (CAGR) 2019: +4.7%.

  • Per capita food consumption value (local currency) growth y-o-y in 2015: +4.9%; CAGR to 2019: +4.9%.

  • Alcoholic drinks value (local currency) sales growth y-o-y in 2015: -0.3%; CAGR to 2019: +2.7%.

  • Soft drinks value (local currency) sales growth y-o-y in 2015: +0.1%; CAGR to 2019: +3.4%.

  • Total mass grocery retail value sales (local currency) growth y-o-y in 2015: +3.3%; CAGR to 2019: +5.2%.

Structural Trends

Policy on Mass Grocery Retailers (MGR) poses a threat to profitability. Hungary has imposed a ban on large retailers that prohibits operating on...

Freight Transport

Hungary Freight Transport

BMI View:

BMI View: The year 2016 will see mixed results for Hungary's freight sector, with rail freight growing by a strong 4.3% and road and air freight seeing more moderate growth of 2.15% and 2.33% respectively. The good performance of rail freight will come on the back of the eurozone recovery, which will boost demand for Hungary's vehicles exports. Road and air freight will profit from improved domestic consumption which will drive imports of consumer goods, transported by these means. Over the medium term we forecast these trends to continue which, supported by investment into rail infrastructure, will increase the importance of rail in the freight mix....

Hungary Freight Transport

BMI View:

BMI View: The year 2016 will see mixed results for Hungary's freight sector, with rail freight expected to post strong growth but road haulage volumes expected to slow on the back of a tempering of fixed investment growth and the migrant crisis. With regard to trade, although Hungary's real GDP growth is forecast to slow in 2016, trade growth will remain resilient and this will bolster volume growth across the country's freight transport sector. Household spending in particular will boost volumes, although a dimming outlook for fixed investment as credit growth slows will be a dampener.

...

Information Technology

Hungary Information Technology

BMI View:

BMI View: Hungary proved a challenging IT market for vendors throughout 2010-2015, due to a combination of recession, a public sector spending squeeze and then steep forint depreciation in 2015. We expect 2016 will be another year of modest growth, when forint depreciation will be a drag on the hardware segment. However, our core scenario is for more robust medium term performance, particularly in USD terms, as a result of significant forint appreciation forecast for 2017-2019. There is downside, due to Hungary's economic linkages with the Eurozone, meaning Brexit and the refocusing of investors on Eurozone challenges such as Italian banks...

Infrastructure

Hungary Infrastructure

BMI View:

BMI View : We expect slower growth in Hungary's construction sector from 2016 onwards as the government's stimulus for the infrastructure sector comes to an end. EU funding will continue to support the sector - particularly strategic road and rail projects, although we caution the EU probe into cartel allegations in road construction could damage relations with a key financier in the European Commission (EC).

Strong growth in Hungary's construction sector is not expected to be long term as we expect a rising fiscal deficit to necessitate a drawback in public investment. Between 2016 and 2024, we expect construction sector real growth to average 3% per year.

...

Insurance

Hungary Insurance

BMI View:

BMI View: Given the low penetration and density in both the life and non-life sectors, BMI believes that Hungary's insurance market offers considerable potential for growth over the next few years. The under-development of the market stems in large part from the low incomes and life expectancies of Hungary's population, and we believe the expansion of the middle class will lead to growth in disposable household income and hence demand for personal insurance lines over the next few years. The health insurance market in particular presents a number of opportunities for investors given the immaturity of the market and the currency paucity of policy holders. Cut backs in state-provided healthcare services and the growth of Hungary's retirement age population should...

Medical Devices

Hungary Medical Devices

BMI View:

BMI View: We expect the Hungarian medical device market to grow by a CAGR of 4.5% in US dollar terms over the 2014-2019 period, boosted by a strengthening economy. Hungary will remain heavily reliant on imported medical devices despite a growing domestic industry. Manufacturers tend to concentrate on exports, most of which are shipped to Western Europe. ...

Oil & Gas

Hungary Oil & Gas

BMI View:

BMI View : Despite an efficient refining sector and favourable regulatory environment Hungary's weak upstream profile renders the country one of the least attractive oil and gas markets in Central and Eastern Europe. Small and depleting reserves will push Hungary's oil and gas production lower over the coming decade thus making the country increasingly dependent on energy imports from Russia.

...
Headline Forecasts (Hungary 2013-2019)
2013 2014e

Petrochemicals

Hungary Petrochemicals

BMI View:

The Hungarian petrochemicals industry is witnessing strong growth, supported by additional capacity and rising demand from domestic industries. The automotive industry dominates the sector's end-market, absorbing the supply of polymers and rubbers. While automotive output growth is set to slow, it will still report a forecast 8.1% growth in 2016, giving a strong basis for continued petrochemicals output growth.

In 2015, Hungary had olefins production capacities of 660,000 tonnes per annum (tpa) ethylene and 400,000tpa propylene. It is also estimated to have polymer capacities of 400,000tpa high density polyethylene (HDPE), 210,000tpa low density polyethylene (LDPE), 650,000tpa polypropylene (PP) and 440,000tpa polyvinyl chloride.

Following a disappointing 2014, Hungary's rubber and plastic output grew by around 15% y-o-y in 2015, while chemicals output rose 2.3%....

Pharmaceuticals & Healthcare

Hungary Pharmaceuticals & Healthcare

BMI View:

BMI View: Hungary's pharmaceuticals and healthcare market will remain a limited prospect for investment due to the systemic underfunding of the healthcare sector. While improvements to healthcare provision and accessibility are likely to increase demand for medicines, the country's revenue earning opportunities remain modest in comparison to neighbouring markets.

Headline Expenditure Projections

  • Pharmaceuticals: HUF660.8bn (USD2.4bn) in 2015 to HUF667.6bn (USD2.3bn) in 2016; +1.0% in local currency terms and -2.3% in US dollar terms. Forecast in local currency terms revised slightly downwards from last quarter.

  • Healthcare: HUF2...

Power

Hungary Power

BMI View:

BMI View: Hungary has a modern and well developed power infrastructure network, with an extensive national grid and sufficient domestic capacity to meet current demand. We are currently forecasting limited growth in the power sector over the medium term, as artificially low prices and limited consumption growth continue to deter investors. The power sector will therefore continue to be dominated by nuclear power and natural-gas fired power, with limited non-hydropower renewables capacity.

Headline Power Forecasts (Hungary 2015-2021)
2015e 2016f 2017f ...

Real Estate

Hungary Real Estate

BMI View:

BMI View: A positive economic outlook will support the real estate sector in Hungary over the medium term. Demand for high quality space should remain high, particularly in the office and industrial sectors. New construction activity remains limited, with the majority of space under construction already pre-let. Consequently, we expect rental growth at the prime end of the market in these two sectors. Retail rents, on the other hand, are likely to remain stable due to the newly introduced legislative changes, which could constrain retailer demand despite rising consumer confidence and spending.

Hungary's economic growth is expected to remain steady over the medium term. GDP growth is forecast to be 2.8% this year and to average...

Retail

Hungary Retail

BMI View:

BMI View: Hungary's economic growth is becoming more reliant on domestic demand, with retail sales performing strongly in recent months. Consumer optimism is being driven by falling unemployment, growing real wages and low inflation, while credit is also becoming easier to access. All this bodes well for Hungary's retailers, as done the relaxation in March 2016 of a partial ban on Sunday trading. However, over the long-term opportunities in the retail sector could be restricted by the declining population, and the medium-term - shrinkage of the key spending demographic of those aged between 20 and 39 years is a concern.

Headline Household Spending
(2014-2020)
...

Telecommunications

Hungary Telecommunications

BMI View:

BMI View: Vodafone emerged as the biggest spender in Hungary's latest spectrum auction in June 2016, wherein two bidders competed for new 4G/LTE spectrum. While Vodafone secured 60MHz, DIGI acquired 20MHz in the 3.4 to 3.8GHz band. The auction outcome makes Vodafone the largest spectrum holder in Hungary. The latest developments quell suggestions that the operator might sell its Hungarian operations.

Product Innovation Driven By Market Saturation
Hungary Mobile Market Forecasts
...

Tourism

Hungary Tourism

BMI View:

BMI View: The tourism sector in Hungary is well established, and the industry is a valuable contributor to the domestic economy. Supporting infrastructure, particularly in the capital Budapest, is very well developed, offering a broad range of hotel options and easily accessible transport connections. Outside of the capital the market is less developed, offering significant scope for future investment as Hungary develops the reach of tourism to more remote and rural regions. At present we are forecasting steady growth in international arrivals to Hungary, boosting tourism expenditure and hotel and restaurant industry value, though we caution that Hungary's reliance upon its European neighbours for arrivals does create some vulnerability to regional declines.

Key Forecasts (Hungary 2013-2020)
...

Water

Hungary Water

BMI View:

BMI VIew: Hungary has considerable issues with regards to its water industry, as its drinking water supply and infrastructure struggle to meet EU standards. The country's water sector is beginning to see significant investment from its own government and the EU, as part of the New Hungary Development Plan, and there is a healthy project pipeline. Meanwhile, a declining population is placing little strain on the existing infrastructure, and the streamlining of processes is guiding our forecast for a decline in extraction and consumption over our five-year forecast period to 2018.

We view the country's water and wastewater utilities sector as one of the more attractive and open in the region, offering greater opportunities than many of its European peers. This is due to the large private sector presence, and the varying ownership...

Latest Hungary Articles

  • We forecast that between now and year-end, the Hungarian and South African ...

  • An unsettled political and economic environment in the wake of the Brexit v...

  • The bulk of our key themes for 2016 are playing out as we expected in emerg...

Latest Hungary Blogs

  • Below is a selection of key financial market stories published in Business ...

Latest Hungary Podcasts

  • The operating environment for energy firms in the European Union is ex...

×

Download PDF

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.

Thank you for your interest

You will shortly receive your free executive summary by email.