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

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Core Views

  • Having been propped up by fiscal stimulus and large volumes of EU structural funding inflows in 2013 and 2014, real GDP growth in Hungary will slow in the coming quarters as government-led investment projects are scaled back. Hungary's domestic demand recovery will trail that of Central European peers due in part to a crippled banking sector.

  • However, we have revised up our 2015 and 2016 real GDP forecasts on account of accelerating external demand, improving terms of trade and a better outlook for private consumption.

  • Although public debt remains well above Emerging European averages and is forecast to decline slowly in the coming years, Hungary's sovereign profile has improved in recent years following substantial external deleveraging.

  • Hungary's current account surplus...

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Hungary Operational Risk Coverage (9)

Hungary Operational Risk

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BMI View: Hungary benefits from a relatively stable economic and political environment, key geographical location with strong trade links across its region and a highly skilled labour force. As a member of the EU, it enjoys low levels of red tape, facilitating the arrival of foreign businesses. However, its landlocked position prevents the country from becoming a major regional trade hub, despite a strong transport network. Investors also face risks associated with high energy costs, energy insecurity, an uncompetitive tax regime and low labour force participation. Nonetheless, Hungary is an established destination for FDI and receives an overall score of 61.9 out of 100...

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Hungary Crime & Security

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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...

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Hungary Labour Market

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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...

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Hungary Logistics

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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 Risks, placing the country among the top 10 out of 31 countries regionally and in 49th position...

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Hungary Trade & Investment

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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...

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Hungary Industry Coverage (19)

Autos

Hungary Autos

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Hungarian new car sales continued to power ahead over H115, in line with BMI's view. Figures released by the European Automobile Manufacturers' Association (ACEA) show that passenger car sales were up by 12.2% y-o-y, at 37,025 units. The commercial vehicle (CV) segment performed even more strongly, with light commercial vehicle (LCV) sales up by 16.4% y-o-y, at 8,176 units, and heavy commercial vehicle (HCV) sales up by 25% y-o-y, at 2,564 units. Bus sales were down by 19.9%, at 205 units. This made for a total new vehicle sales market of 47,970 units for the first quarter, up by 13.3% y-o-y.

Given this positive first half, BMI is happy to maintain its forecast for 13% growth in overall new vehicle sales over 2015. On current sales trends, this should take total new vehicle sales back up through the 100,000 unit mark for the first time since 2008, although the market remains a...

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Commercial Banking

Hungary Commercial Banking

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

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Consumer Electronics

Hungary Consumer Electronics

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BMI View: A more bearish outlook for forint depreciation in 2015 has resulted in a downgrade to the consumer electronics spending growth outlook for Hungary. The PC and AV segments are expected to be 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. The 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 environment becomes more supportive due to the weak household income growth trend in Hungary. We expect some growth in premium households, but in the mass market we expect weak household growth and continuing price sensitivity, reducing the scope for sale of...

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Defence & Security

Hungary Defence & Security

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BMI View: Hungary acknowledges that its geographical position in Central Europe, bordering the Ukraine as well as the Balkans, presents some threats, as well as opportunities. Stability in Central and Eastern Europe and South East Europe, remains the top priority for Hungarian foreign and security policy.

Similar to other Eastern European countries, Hungary has had to deal with a significant transformation of its defence industry as a result of its post-Cold War democratic transition. Some companies such as Danubian Aircraft have been successful in this transformation. It has managed not only to recover from bankruptcy of its parent company PVG but also to participate in the operation of upgrading 14 Gripen and other aircraft for the Hungarian Air Force.

The armed forces suffer from budgetary constraints. Nevertheless, the...

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Food & Drink

Hungary Food & Drink

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BMI View: Although we now expect the Hungarian National Bank (MNB)'s base rate to remain fairly low through to the end of 2015, we see little to indicate that household spending will pick up significantly over the course of the year. While the country's economy will continue its gradual recovery, thereby supporting its food and drink industry, continuing unpredictable policy-making and high corporate tax rates have the potential to impact negatively on investment inflows.

Headline Industry Data

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

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Freight Transport

Hungary Freight Transport

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BMI View:Rail freight will be the strongest growing freight sector in 2015 and it will outperform the other freight sectors over our forecast period. This is due to rail infrastructure investments and the good trade outlook for manufactured goods. Still, road will continue to dominate Hungary's freight mix in 2015, with a share of 74%. Little growth will be seen in the air sector as it continues to lack investment. Overall, the freight sector will benefit from the improved economic outlook in the eurozone economies, in particular in Germany, and the recovery in domestic consumption.

We expect real GDP to grow by 2.9% in 2015, down from 3.6...

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Information Technology

Hungary Information Technology

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BMI View: Forint depreciation against the US dollar in 2015 will be a drag on Hungarian IT market growth, with our Hungary Country Risk team's more bearish forint view in Q4 reflected in a downgrade to the IT market growth forecast in US dollar terms. The relatively weak outlook also extends over the medium term, with the Hungarian economy expected to remain regional underperformer, extending the trend of recent years. However, IT market spending growth should strengthen as the economic environment improves, particularly in the latter years of our...

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Infrastructure

Hungary Infrastructure

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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.

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. It is also likely there will be a slowdown in spending during 2015, as the government enforces spending cuts. Between 2016-2024, we expect construction...

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Insurance

Hungary Insurance

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BMI View: Hungary's insurance market is under-penetrated by both regional and global standards. Although total penetration has been consistent, it only accounts for only 2.7% of GDP which puts Hungary among the lowest rating countries out of the OECD member group, especially with an OECD average of 8.4% GDP. Regionally, unlike some of its counterparts in Central and Eastern Europe (CEE), Hungary does not have a strong outlook in terms of premium growths from a large base as the country is more fragmented and facing numerous challenges. Recently the economy has enjoyed a small boost driven by private expenditure, but we don't see this...

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Medical Devices

Hungary Medical Devices

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BMI Industry View: We expect the Hungarian medical device market to fall by a CAGR of 0.4% over the 2013-2018 period, although the growth rate in local currency terms is more encouraging at 3.1%. Hungary is 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. The comprehensive public hospital sector and...

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Oil & Gas

Hungary Oil & Gas

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BMI View: Despite an efficient refining sector and favourable regulatory environment, Hungary's weak upstream profile and persisting geopolitical tensions in the region 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 ...

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Petrochemicals

Hungary Petrochemicals

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BMI View: The Hungarian petrochemicals market will witness lower growth as the economy experiences a slowdown, turning from a regional outperformer to a slow-growth market. However, surging automotive output should help support polymer and rubber consumption growth in 2015 and beyond.

Growth in rubber and plastic output was strong in the first five months of 2015 at 12.4%, nearly twice the rate of overall manufacturing growth. While output has been on an upwards trend since mid-2014, in Q215 it showed signs of a slowdown, in line with the performance of the overall economy. Polyethylene (PE) output rose by 10% y-o-y to 272,000 tonnes in H115 with growth largely concentrated in the first quarter with growth slackening considerably in the following quarter. In contrast, polypropylene (PP) experienced a sustained surge with 23.5% y-o-y growth to 268,000 tonnes in H115. Petrochemicals output should...

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Pharmaceuticals & Healthcare

Hungary Pharmaceuticals & Healthcare

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BMI View: Hungary's improving macroeconomic outlook and pledges by the government to raise healthcare expenditure will boost pharmaceutical sales in the coming years. Consumer demand for over-the-counter medicines and greater uptake of generic medicines will be the primary drivers of pharmaceutical sales growth, as uptake of innovative drugs will remain hindered by the pricing sensitivity and budgetary constraints of the OEP national healthcare fund. However, Hungary's attractiveness to multinational drugmakers will remain impeded by onerous regulatory burden, pricing pressures and punitive taxes on pharmaceutical companies.

Headline Expenditure Projections

  • Pharmaceuticals: HUF640.21bn (USD2.75bn) in 2014 to HUF652.76bn (USD2.31bn) in 2015; +2.8% in local currency terms and -15.9% in US dollar terms...

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Power

Hungary Power

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BMI View: This quarter our view on the Hungarian power market remains largely unvaried, we continue to expect power generation to steadily rise over the forecast period, from 34.03TWh in 2015 to 36.59TWh by 2024. We also expect thermal energy to remain the single largest component in Hungary's power mix, and an expansion of gas-fired electricity will constitute most of the expected rise in output. Meanwhile, consumption of power will rise by from 38.10TWh to 43....

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Real Estate

Hungary Real Estate

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BMI View: Following on from a year of rapid growth, the Hungarian economy is expected to continue growing, albeit at a slower rate due to the inability to maintain economic measures which kick started the growth last year. The real estate sector is set to benefit from the stability in the country, with strong political and bureaucratic outlook attracting investors, particularly in the industrial and infrastructure sectors. Rental rates and yields are expected to remain stable over the short term; however with the more favourable development environment and more stringent restrictions placed on international companies, if demand does not accelerate, vacancy rates may rise with rental cost falling in consequence.

Acceleration in Hungary's GDP proved the catalyst for the commercial real estate...

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Retail

Hungary Retail

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BMI View: Hungary's economic recovery will prolong into 2015 with growing exports and stronger business investments. Healthier economic activity will translate into lower unemployment and rising household income in 2016 and beyond, eventually resulting in growing retail spending. Despite a series of retail restrictions recently passed into law, Hungary will create a good macroeconomic environment for retail operations.

Hungary's economic struggles were put to an end in 2014 as the country's real output expanded at one of the fastest rates in the EU. Recovering export markets, increased sustainability of government spending and even some of the unconventional measures targeted at companies across a variety of industries, all contributed to 3.6% GDP growth. Growth rates of such extent had not been seen in Hungary since the...

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Telecommunications

Hungary Telecommunications

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BMI View: Despite still being considered an emerging market, Hungarian mobile penetration has passed a saturation point and BMI believes that both penetration and market growth will plateau over our forecast period. In order to boost revenues, operators are focussing on value-added data products as well as developing LTE networks, but this is yet to be reflected in ARPU growth of non-voice services. Meanwhile, fixed-line subscription growth has proved to be resilient, but BMI believes that overall subscriptions will decline over our forecast period.

Key Data

  • Mobile market growth is largely over, with just 1.25% growth in 2014. Although the fastest rate of growth since 2008, only incremental growth is expected over 2015-2019, with an average compound annual growth rate of just 0.5%. Operators...

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Tourism

Hungary Tourism

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BMI View: Hungary's tourism sector is forecast to experience good growth up to 2019. This growth can be directly linked to the economic state of the country, something that is set to improve over the same period including an expected GDP growth of 3% over 2015. The sector will also benefit from increases in the number of inbound tourists, especially from nearby European countries, as other economies consolidate and disposable income becomes more readily available. The Hungarian government is keen to invest in tourism, including significant improvements in the travel infrastructure and developing better marketing to developing markets such as Asia and the Pacific.

Hungary's tourism is currently based predominantly around its major cities with the capital, Budapest, a particularly popular destination. This is highlighted by the number...

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Water

Hungary Water

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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...

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