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: Hungary is a relatively stable country with low levels of crime and security risk, offering an attractive environment for investors. While threats from state or terrorist actors are low, some criminal involvement in the formal economy and occasional political unrest have the potential to disrupt business operations.

Hungary is a very stable nation from a geopolitical perspective. The risk of interstate conflict is very low, mitigated by high levels of international cooperation. The terror threat is also low, as there are no international groups known to be operating in the country. Criminal risk presents the greatest security threat. Crimes against individuals are no worse than in other European countries, although we see increasing influence from criminal groups in the formal economy. This serves to lower Hungary's overall performance slightly, scoring 70.6 out of 100 in...

Hungary Labour Market

BMI View:

BMI View: Hungary's high quality education system and improving public health services has resulted in the availability of a skilled and productive labour force, which foreign investors benefit from. Nevertheless, businesses face costs associated with high labour taxes, a small migrant worker population and relatively high minimum wages. Taking these factors into consideration, BMI has given Hungary a score of 54.9 on the Labour Risk Index, placing it 20th out of 31 countries in Emerging Europe and 85 thout of 201 states globally.

Hungary's well developed education system is one of the country's key strengths, making its labour force attractive for foreign businesses operating in the country. Public education is free for children until the age...

Hungary Logistics

BMI View:

BMI View: Hungary benefits from well-developed logistics, with a developed transport system enabling strong trade links with regional neighbours. However, the country is landlocked and therefore lacks shipping and air lines, making it less attractive for foreign businesses. Hungary's extensive trade bureaucracy, overreliance on power and fuel imports and high utilities costs pose further risks to investors. The country therefore scores 61.1 out of 100 for Logistics Risk, placing the country seventh out of 31 countries regionally and in 49th position out of 201 countries in the world.

Hungary's improving economic growth outlook is partly driven by lower fuel prices, which were previously highly uncompetitive. However, electricity costs remain very high and the absence of domestic...

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: Following bearish forecasts for the Hungarian consumer electronics market in 2015, we expect 2016 to see a modest return to growth. Forint depreciation in 2015 resulted in a downgrade to the consumer electronics spending growth outlook for Hungary, with the PC and AV segments hit harder than handset sales due to the higher average selling price, reduced ability to absorb price increases and the lesser necessity of PC or TV ownership versus mobile handsets. Nevertheless, our forecast is for a return to growth from 2016, and acceleration in 2017, as the forint strengthens and underling economic conditions become more favourable. The outlook is however weaker than many other markets of comparable income levels, even once the economic...

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 growing by a strong 4.3% while growth in road haulage volumes will slow on the back of a tempering of fixed investment growth and the migrant crisis.

Although we expect that Hungary's real GDP growth will slow slightly 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.

We expect growth in road haulage volumes in Hungary to be broadly flat in 2016 and over...

Information Technology

Hungary Information Technology

BMI View:

BMI View: After recession and forint depreciation weighed on economic sentiment and IT market performance in Hungary in recent years the medium term-outlook is considerably stronger. Conditions will improve slightly in 2016, but we expect a faster growth trajectory from 2017 across all three market segments as household income growth improves the retail hardware market, while enterprise modernisation and rationalisation will drive faster growth for software and services spending. We forecast IT spending will increase at a CAGR of 6.1% 2016-2020 to HUF679.1bn.

Latest Updates And Key Forecasts

  • ...

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: The Hungarian healthcare sector will continue to face challenges which will limit the country's attractiveness to multinational pharmaceutical firms. Low wages, a rising disease burden and the migrant crisis have caused the healthcare system to be labelled as in a critical condition.

Headline Expenditure Projections

  • Pharmaceuticals: HUF660.80bn (USD2.37bn) in 2015 to HUF668.00bn (USD2.28bn) in 2016; +1.1% in local currency terms and -3.5% in US dollar terms. Forecast revised downwards from last quarter.

  • Healthcare: HUF2.43trn (USD8.70bn) in 2015 to HUF2.47trn (USD8.43bn) in 2016; +1.6% in local currency terms and -3.1% in US dollar terms. Forecast revised downwards from last quarter.

    ...

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: There is little change in our view that household incomes, employment levels and spending will rise during 2016, leading to increased retail spending. While consumer confidence levels fell in February and then again in March, they remain high overall, and together with extremely low inflation rates we expect to see strong spending growth for the remainder of the year.

Headline Household Spending
(2014-2020)
e/f = BMI estimate/forecast. Source: Eurostat, BMI

...

Telecommunications

Hungary Telecommunications

BMI View:

BMI View: Magyar Telekom has partnered with Fon to launch a free Wi-Fi service. Customers will be able to access the internet outside their homes without any data limits or excess charges, in nearly 2,000 localities in Hungary and some 20 countries worldwide over Fon's Wi-Fi network. BMI believes Fon will be able to rapidly monetise these pervasive advanced on-the-go value-added services, creating valuable new revenue stream for the Hungarian incumbent.

Product Innovation Driven By Market Saturation
Hungary Mobile Market Forecasts
National Sources/BMI...

Tourism

Hungary Tourism

BMI View:

BMI View: Hungary has a well-developed tourism industry, particularly in the capital Budapest, which for a long time has been a popular short-break destination for visitors throughout Europe. We expect to see continued growth in international tourism arrivals to Hungary over the course of the forecast period from 2016 to 2020, supported by improving domestic and international transport connections and government investment in wide-reaching marketing campaigns. The country is heavily reliant upon European source markets, which does create vulnerability through over-exposure to potential regional declines, and as such we expect to see a focus over the longer term on expanding travel from source markets further afield, particularly affluent Asian and Middle Eastern markets.

...

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

  • With global growth continuing to stutter amid unconvincing growth performan...

  • A few key themes stand out when comparing BMI's forecasts against Bloomberg...

  • Mercedes-Benz's investment to develop its next generation of compact cars i...

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.