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 Q115, in line with BMI's view. Figures released by the European Automobile Manufacturers' Association (ACEA) show that passenger car sales were up by 10.1% y-o-y, at 17,958 units. The commercial vehicle (CV) segment performed even more strongly, with light commercial vehicle (LCV) sales up by 34.9% y-o-y at 4,167 units and heavy commercial vehicle (HCV) sales up by 50.1% y-o-y, at 1,484 units. Bus sales were up by a stellar 160.7% y-o-y, at 73 units. This made for a total new vehicle sales market of 22,782 units for the first quarter, up 16.2% y-o-y.

Given this positive start to the year, BMI is happy to maintain its forecast for 13% growth in new vehicle sales over 2015. 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 long way off its...

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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: The Hungarian economy has been a regional underperformer in recent years and the outlook is expected to remain weak in 2015 and into 2016 as forint depreciation against the dollar is expected to dampen device demand. This is a shift from the positive trend in 2014 when booming tablet and smartphone sales, as well as the fact upgrade demand was brought forward by the withdrawal of XP support and the FIFA World Cup, drove overall growth. Although several macroeconomic indicators are expected to continue to strengthen in 2015, the depreciation of the forint against the US dollar will mean trading conditions remain challenging and we expect a contraction in both PC...

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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 : Hungary's freight transport sector will grow strongly in 2015 as the country's economic growth continues to quicken, with private consumption adding a lot to this growth. Road freight growth will outperform the other modes as the sector will continue to dominate the majority of trade, and as consumer demand increases. Over the longer term, however, there is significant potential for the rail sector to increase at a faster pace than road, due to large investment projects such as the Silk Road programme.

Hungarian trade will grow much more strongly over the coming years relative to the previous several. Economic growth will be strong over 2015 and several years beyond, driven by private consumption growth which will fuel import growth. A better economic picture in Europe will benefit regional trade.

The freight sector in Hungary is dominated by...

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Information Technology

Hungary Information Technology

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BMI View: The Hungarian Country Risk team's revised forecast for faster forint depreciation against the US dollar in 2015 resulted in a downgrade to the forecast for IT market growth in the Q3 update. The Hungarian economy has been a regional underperformer in recent years, and the operating environment for IT vendors is expected to remain challenging in 2015 and into 2016. However, IT market spending growth should strengthen as the...

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Infrastructure

Hungary Infrastructure

BMI View:

BMI View : Strong economic growth will be supportive of construction sector growth, with the energy and transport sectors being the key growth drivers. However, BMI cautions that the recent EU probe into cartel allegations in road construction could see some of the vital EU funding withdrawn, which places significant downside to our forecast.

Hungary's construction sector is booming off the back of strong public investment and EU funding and BMI expects the construction sector to grow by 7.2% in 2015 and a further 1.6% in 2016. Strong growth in Hungary's construction sector is not expected to be long term as we expect a rising fiscal deficit to necessitate a draw back in public investment. It is...

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Insurance

Hungary Insurance

BMI View:

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 industry remains an outperformer in Central and Eastern Europe. Steady growth in output was reported for 2014 and we are optimistic that future growth will support continued expansion of capacities over the forecast period (to 2019).

The automotive industry is playing a major part in the country's plastics and rubber growth story with petrochemicals investment largely targeting the automotive supply sector. Production capacity in polyurethane used for car seating and synthetic rubber for tyres have has grown strongly with projects continuing to boost output. Hungary is highly specialised in the production of isocynates, used in the manufacturing...

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Pharmaceuticals & Healthcare

Hungary Pharmaceuticals & Healthcare

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BMI View: Hungary's attractiveness to multinational drugmakers will be impeded by onerous regulatory burden, pricing pressures and punitive taxes on pharmaceutical companies. Combined, these factors will impede growth in pharmaceutical sales over the short-term. 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.

Headline Expenditure Projections

  • Pharmaceuticals: HUF618.0bn (USD2.66bn) in 2014 to HUF624.09bn (USD2.30bn) in 2015; +1.0% in local currency terms and -13.2% in US dollar...

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Power

Hungary Power

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BMI View: This quarter we have slightly revised our forecast. 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 43.07TWh over the same timeframe, underpinned by a steady growth in the construction sector. The...

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Real Estate

Hungary Real Estate

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BMI View:  A healthier economy has helped provide greater stability for the Hungarian commercial real estate sector during recent months with strong levels of internal and external demand creating a stable footing for demand for rental space and investment. The mood has since begun to sour, however, as economic growth has begun to waver and the central bank has taken measures to support the market.

An acceleration in Hungary's GDP proved the catalyst for the commercial real estate market during 2014 following a prolonged period of stagnation and contraction in rental rate costs across much of the market. The year saw rental rates remain on a stable footing as both internal and external demand trended upwards. Meanwhile, the market saw a substantial increase in investment with transactional activity forecast to have grown by 135% over the full-year on a year-on-year (y-o-y...

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Retail

Hungary Retail

BMI View:

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

BMI View:

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: We expect to see higher tourism-related receipts and hotel and restaurant industry value over the next five years as well as investment in the tourism sector and physical infrastructure in particular. However, this growth will be highly dependent on the stability of the eurozone and key European source markets, on which Hungary relies for almost 90% of tourist arrivals.

We expect to see healthy growth in Hungary's tourism market over the 2015-2019 period, driven by solid domestic economic growth, and improvements in the wider European region (which represents Hungary's key source market). This will be boosted by the proliferation of low-budget airlines that will encourage additional travellers from countries...

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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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