German companies in Hungary are worried, they want the euro and a more predictable economic policy

The results of the 2024 economic report of the German-Hungarian Chamber of Industry and Commerce (DUIHK) paint an unfavorable overall picture of the situation of the domestic economy and the competitive market mood, which show that

the prospects have deteriorated significantly, many challenges make life difficult for companies.

For this reason, they expect only a modest improvement in terms of their business situation this year, and they do not expect an increase in employment and investments – it is clear from this year’s survey, in which 241 Hungarian companies participated, while a total of 1,292 managers filled out the questionnaire in parallel research in 15 other countries of the region. .

According to the report, the biggest risk for companies is weak demand and labor costs, but many companies continue to be burdened by the lack of skilled labor, energy prices and exchange rate fluctuations. Regarding the quality of the business environment, the positive trend of recent years did not continue in several areas, for example in the predictability of economic policy and legal certainty.

Most respondents (44 percent) consider the current situation of the Hungarian economy to be satisfactory or unchanged compared to last year, but almost the same number, 41 percent, see it as bad or worsening, while only 14 percent feel it is improving. On the other hand, based on the balance of positive and negative responses, dissatisfaction is close to 30 points, while last year it did not reach 20.

Unsurprisingly, only 26 percent expect an improvement in the Hungarian economy this year, while 44 percent say the situation will not change significantly, and 30 percent say the situation will remain unfavorable.

Sales expectations, on the other hand, show a slightly more positive picture: 38 percent expect an improvement, 37 percent say there will be no change, while only 25 percent of respondents expect a decline. In the case of export revenue, 57 percent expect stagnation, 28 percent expect an improvement, and only 15 percent of German companies expect an even worse situation. In their own business situation, however, only a little more than a quarter of respondents (29 percent) believe in positive developments.

Why is the survey important?

There are a total of 2,437 German companies in Hungary, which mainly dominate the vehicle industry. Every year, they continuously invest 2-3 billion euros in real tangible assets. Their added value production is 10 billion euros per year. By the way, the vehicle industry is almost completely (94 percent) dominated by foreign-owned companies, the proportion of German interests in the sector is 59 percent.

German companies employ around 220,000 workers in Hungary, which is about a tenth of the employees in the private sector. Germany is also the most important export market for Hungarian foreign trade.

Regarding the employment plans, it can be seen that 27 percent are thinking about hiring, 54 percent are satisfied with their current staff, while 19 percent may decide to downsize this year. Only 33 percent of respondents have a new investment plan. When broken down by sector, the surveyed see their situation as the worst in the commercial sector: 15 percent see it as good or expect improvement, while 38 percent say its situation is bad or deteriorating.

German companies operating in the manufacturing and service sectors are more optimistic: 34-33 percent see the situation and prospects as positive. Otherwise, mainly the managers of the largest companies employing at least 1,000 people are optimistic, 44 percent of them see and expect improvement. In the three smaller employment categories, 27-31 percent are optimistic, but 51 percent of companies with 100-249 employees see their situation and prospects as particularly bad.

The weak national economic situation and subdued business prospects are clearly reflected in the assessment of risks: 54 percent of the respondents complained about the lack of demand. Although it is important to note that compared to the second half of last year, companies have become more optimistic overall.

Almost the same number – 51 percent – fear the unfavorable development of labor costs in the next 12 months as a risk element, while 41 percent think the lack of professionals is a challenge. This is especially a problem for companies in IT, product development, and physical workers involved in production. By the way, companies mostly try to deal with the problem with further training (59%) and increasing automation (50%).

In addition, companies consider wage increases to be an important means of retaining employees, but this year company managers are planning an average increase of only 11 percent.

Only 40 percent fear unfavorable developments in energy prices and the forint exchange rate.

On the other hand, 37 percent are afraid of economic policy moving in the wrong direction, while 22 percent fear legal certainty becoming less favorable.

In a regional comparison, compared to companies operating in other Central and Eastern European countries, Hungarian business leaders are generally more concerned: while the average of the 16 countries is 45 percent for fears of an unfavorable development in demand, it is 9 percent here, and 20 percent for legal certainty, which is the domestic level 2 percent higher.

Unpredictable economic policy, legal certainty problems

In many ways, there is a deterioration in the assessment of the economic policy framework compared to previous years. An exception to this is the evaluation of the efficiency of the public administration, because, as last year, the proportion of those who are somewhat or very dissatisfied is 29 percent, while the percentage of those who are satisfied is only 7 percent. Even so, Hungary is considered the 4th best public administration service among the countries examined, only Estonia, Lithuania and Poland are ahead of us.

However, in the case of the already mentioned legal certainty, the decline is more spectacular: while in 2022 only 36 percent were somewhat or very dissatisfied, in two years this has already jumped to 48 percent. This put us in the middle of the region, while two years ago we were still at the top.

After several years of improvement, since 2022 the number of those who are dissatisfied with the transparency of public procurement has risen again, their proportion is already 56 percent, while only 11 percent consider this area good. Currently, the system is seen as worse only in Slovakia, Bulgaria, North Macedonia and Albania.

As for the predictability of economic policy, the deterioration is quite significant compared to 2022: then the total proportion of partially or completely dissatisfied was only 41 percent, last year it was 55 percent, and this year it is 60 percent.

Inefficient action against corruption and crime is also seen by more and more people as a problem, 64 percent consider the situation in Hungary rather or particularly bad, which is an increase of 3 percent, but the proportion of the most dissatisfied has increased. Otherwise, this again places Hungary in the middle of the region, because the Slovenian, Croatian, Bosnian, Bulgarian and Slovak situations are also considered worse by the company managers there.

It also appears that domestic German companies are not satisfied with access to subsidies either, because while 28 percent considered this sub-area to be somewhat or very good in 2022, by then only 19 percent answered this way. While the proportion of dissatisfied people increased to 49 percent this year from 40 two years ago.

On the other hand, company managers are mostly satisfied with Hungarian infrastructure (57 percent), as well as with local suppliers (48 percent) and payment discipline (42 percent).

The DUIHK’s Investor Mood Index takes into account the questions of the survey that relate to the medium-term economic activity of companies (e.g. business expectations) or significantly influence the latter (e.g. satisfaction with the business environment. In the spring of 2024, the value of the Index is the same as with last year’s result, the level of +3.4 points indicates a minimally positive mood, but is still below the 9-point average of the last 20 years.

In any case, there is no great desire to emigrate either: 80 percent answered yes to the question whether they would choose Hungary as an investment location again today. There is such a shift in mood that now 73 percent of company managers would be happy with the introduction of the euro, which is the highest value since 2011.

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