Our comprehensive assessment of Hungary's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Hungary, as well as the latest industry developments that could impact Hungary's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Hungary before your competitors.

Country Risk

Hungary Country Risk

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Core Views

  • Having been propped up by fiscal stimulus in 2013 and 2014, real GDP growth in Hungary will slow substantially in the coming quarters as government spending is scaled back. Hungary's domestic demand recovery will trail that of Central European peers due in part to a crippled banking sector, while external demand will remain weak on the back of a stalled eurozone recovery.

  • We believe that the threat of EU structural funding cuts - which Hungary has become increasingly dependent on - will be sufficient motivation for the government to pursue an austerity programme to keep the country's deficit within EU limits in the coming years. However, public debt will remain well above Emerging European averages and Hungary will remain in a precarious fiscal position with minimal resilience to shocks.

  • Hungary's current account surplus peaked...

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Hungary Operational Risk Coverage (9)

Hungary Operational Risk

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Hungary offers a stable environment for international business, exhibiting low leve ls of crime and security risk. T hreats from state or terrorist actors are low. We see the greatest threat stemming from criminal involvement in the formal economy, while occasional bouts of political unrest can disrupt business operations.

From a geopolitical perspective, Hungary is a very stable nation. 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 73.9 out of...

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Hungary Crime & Security

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Hungary offers a stable environment for international business, exhibiting low leve ls of crime and security risk. T hreats from state or terrorist actors are low. We see the greatest threat stemming from criminal involvement in the formal economy, while occasional bouts of political unrest can disrupt business operations.

From a geopolitical perspective, Hungary is a very stable nation. 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 74.0 out of...

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Hungary Labour Market

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Incoming investors to Hungary can capitalise on high skills levels within the labour market. Moreover, if businesses cannot find the specialist workers they require, EU citizens can be employed without restriction. The downside risks to be aware of are low workforce participation rates and a minor disjuncture between skill-sets and labour market needs, which affects labour availability. Meanwhile, unions and minimum wage policy put upward pressure on labour costs, although Hungary remains competitive when compared to Western Europe. We do not see these risks as an impediment to private sector business however, and Hungary's popularity as a manufacturing and outsource destination is justified.  The Hungarian government has failed to resolve long-term unemployment and low labour force participation issues, which significantly limit labour supply. Labour tax rates are also unfavourable and increase labour costs in the country, which are...

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Hungary Logistics

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Hungary is a strong performer in our Logistics Risk Index with limited risks to the country's supply chain. The country's transport network and international trade links are well-developed and boast a respectable amount of trade volume, which is set to increase. However, the greatest logistics risks for foreign businesses relate to a high level of trade bureaucracy, overreliance on the road network for most of the country's freight traffic and the relatively limited radius of Hungary's supply chains as the country is landlocked and lacks shipping as well as air lines. Therefore, Hungary scores 56.8 out of 100 for Logistics Risks overall, which places the country among the top ten regionally and on 55 th position in the world.

Hungary's overall good performance is a result of a combination of factors, first and foremost Hungary's transport network, which caters for the overwhelming majority of international freight traffic via the...

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Hungary Trade & Investment

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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 low levels of red tape. 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. Overall, Hungary remains a low risk investment choice, with net capital inflows through direct and portfolio investment channels.

Hungary is a key player in trans-European trade and is a well-establish foreign investment destination within the Emerging European region. It has achieved this through economic openness, low government intervention, and the development of a strong legal framework. As a result, Hungary has limited Trade and Investment risks, scoring 73.2 out of 100.

Hungary has a comprehensive legal framework that...

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Hungary Industry Coverage (19)

Autos

Hungary Autos

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Hungarian passenger car sales in June 2014 increased 25% (y-o-y) to 6,243 units. H114 sales figures came in at 32,992 units, a 21.4% y-o-y increase on H113. Consumers in Hungary are benefiting from real wages rising, lowering of interest rates and a decline in unemployment which has led to an increase in passenger car sales. This could prove short-term however, due to Hungary's relative economic instability even after recovery. The government has embarked on an expansionary fiscal policy in spite of the risks this poses to long-term stability, which may have a detrimental impact on sales figures in 2015 ( see ' Government Spending Unable To Prevent Slowdown' Aug ust 20).

Many large global carmakers including  Knorr-Bremse, Bosch, General Motors,...

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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: T he Hungarian consumer electronics market has suffered from the challenging economic environment in Hungary in recent years but demand recovered in 2014 as a result of technology trends , ie 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 . 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 demand to contract in US dollar terms in 2015...

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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 :   While the gradually recovering economy is a positive sign for Hungary's food and drink industry, poor crediting conditions are expected to continue limiting household spending thus preventing more substantial sales growth, especially in the short term. We see sales picking up towards the second half of our forecast period, with health and convenience-oriented products outperforming.

Headline Industry Data

  • Total food consumption value (local currency) growth year-on-year (y-o-y) in 2014: +3.6%; compound annual growth rate (CAGR) 2018: +4.5%.

  • Per capita food consumption value (local currency) growth (y-o-y) in 2014: +3.8%; CAGR to 2018: +4.7%.

  • Alcoholic drinks value (local currency)...

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Freight Transport

Hungary Freight Transport

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Following a year in which BMI believes saw increasing volumes in all of the Hungary's freight transport modes, 2014 will signal further growth across the whole sector, as the country's economic outlook continues improving.

Total trade is projected to pick up with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 5.09% in 2014 following a growth of 5.28% in 2013.

Road freight is to continue to dominate the sector and is projected to grow by 1% in 2014. To the end of our forecast period to 2018, we expect the sector to defy the European Union (EU) pledges of a decrease in road haulage across the region. That is not to say, however, that road freight's market share is completely safe.

BMI notes that rail is the likeliest candidate in Hungary's freight transport mix to benefit from any diversification away from road, after the...

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Information Technology

Hungary Information Technology

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BMI View:   The Hungarian economy has been a regional underperformer in recent years, and the outlook remains fragile in 2015 and over the medium term, but there are increasing reasons for optimism . O ur view i s for medium term IT market spending growth to strengthen as the economic environment improves. We also believe there are solid IT fundamentals for medium - term growth. In the retail market relatively low penetration rates, combined with declining device prices, particularly in the tablet...

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Infrastructure

Hungary Infrastructure

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BMI View : The election victory of Fidesz party in April provides continuity in Hungarian policy making, which will support the economic growth. Macroeconomic growth coupled with strong public investment and supported by the E U funding will result in a short-term boost in infrastructure development. As a result BMI forecasts the construction industry will grow 16.3% in 2014 and another 8.1% in 2015. However, mounting fiscal pressures add a downside risk to BMI 's outlook.

Hungary's construction sector is booming off the back of strong public investment and EU funding, and...

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Insurance

Hungary Insurance

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BMI View:   Hungary's insurance s ector has hardly been growing . The sluggish expansion of the economy points to continuing stagnation in volumes in the non-life segment. It will also hold back the life segment despite the efforts of the trade association to promote understanding and usage of life insurance and organised savings products. A major challenge remains over-capacity resulting in pressures on prices and margins, which are generally in a downwards direction even though some players have successfully taken measures to boost profitability through 2014. The highly fragmented and competitive landscape is expected to consolidate further.

As of late 2014, the most recent news flow from Hungary's insurance sector remains uninspiring. Both segments are small in absolute terms and, by several metrics, underdeveloped by...

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Medical Devices

Hungary Medical Devices

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Espicom Industry View: The Hu n garian medical device market is expected 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:  Long known for a good above ground risk profile and meagre below ground prospects, Hungary says it may need to scramble to bolster petroleum reserves due to its near complete reliance on Russia in light of the widening economic aftershocks of the Russia -Ukraine situation

...
Headline Forecasts (Hungary 2012-2018)
  2012e 2013e 2014f 2015f 2016f

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Petrochemicals

Hungary Petrochemicals

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Growth in the Hungarian automotive industry is likely to support petrochemicals production, but the weakening domestic environment gives cause for concern particularly in relation to the crucial construction sector, according to BMI's latest Hungary Petrochemicals Report.

Government statistics reported strong growth in rubber and plastics, which rose 9.2% year-on-year (y-o-y) in the first eight months of 2014, although this was lower than total manufacturing output growth of 10.5% y-o-y. However, the country's largest polymer producer MOL reported a 1.5% fall in petrochemicals output to 722,000 tonnes with ethylene down and polymer segments noting a sharp fall, mitigated only by strong growth of low-density polyethylene (LDPE) due to base effects caused by the temporary shut-down of an LDPE plant in 2013. As such, plastics and rubber growth is likely to have come from other more niche producers...

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Pharmaceuticals & Healthcare

Hungary Pharmaceuticals & Healthcare

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BMI View:   We expect the decline in Hungary's pharmaceutical market to stabilise in 2015 , although a   challenging   operating environment and regulatory burden will weigh on market growth . Our country risk team also see s potential headwinds to spending growth, namely Hungary's excessive government deficits and a German economic slowdown that will reverberate throughout the Central and Eastern European region . Pricing pressures and slow uptake of new medicines will continue to present near-term headwinds to pharmaceutical sales, as will patent...

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Power

Hungary Power

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BMI View: Power generation will rise by steadily over the ten-year forecast period, from 35.4 TWh in 2014 to 38.4TWh by 2023. Thermal energy will remain the single largest component in Hungary ' s power mix, and an expansion in of gas-fired electricity will constitute most of the expected rise in output. Meanwhile, consumption of power will rise by an average of 1.3% a year over the next decade, underpinned by a steady growth in the construction sector. The major background development will be massive investment in the Paks nuclear power station which will significantly expand production of nuclear power just beyond the ten-year forecast period to 2023 .

Key Trends And Developments

  • The government is continuing its policy of imposing administered...

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Real Estate

Hungary Real Estate

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BMI View: Hungary ' s macroeconomic environment has seen dramatic improvements over the previous quarter, with Real GDP growth far exceeding expectations and prompting revisions to 2014 ' s forecast. While such growth is unlikely to be maintained during H214, the healthier economy is hoped to support a recovery in rental rates within the Hungarian real estate market throughout the rest of 2014 and into 2015.

The Hungarian economy is on the road to recovery with rising industrial production and construction volumes generating remarkable levels of growth in Real GDP. This economic stabilisation is expected to support much needed growth in demand for commercial real estate. In addition, Hungary's recent exit from the EU's Excessive Deficit Procedure should stabilise demand in the office rental segment....

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Retail

Hungary Retail

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BMI View : The Hungarian retail sector will continue to play a leading role in trade for CEE as its central location and superior business infrastructure remain ideal conditions to secure foreign investment. Having already attracted the investment of international retail giants, entering 2015, we expect to see a greater presence of major discount chains as consumer habits are becoming increasingly frugal.

Since joining the European Union, Hungary has witnessed a large amount of retail development and heavy investment from key players has led to some saturation in the market. However opportunities for growth across specific segments of the retail sector are evident, in particular, discounters and online retailers are areas that seem set to expand as they are gaining popularity with consumers. Expansion in these relatively modern areas of the retail market show how...

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Telecommunications

Hungary Telecommunications

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BMI View:   Hungary underwent its first large scale 4G spectrum auctions, which saw nine blocks of bandwith divvied up between four network operators. Alongside incumbents Telenor , T-Mobile and Vodafone , the telecommunications regulator NMHH also licenced a new market player Digi . BMI believes that while Digi's entrance will have a limited impact on the Hungarian mobile market, the auction will spur 4G and mobile data usage growth. It is believed that Mid Europa Partners will sell its subsidiary Hungarian telephony and broadband operator Invitel ...

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Tourism

Hungary Tourism

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BMI View:  The future of Hungary's tourism industry is intertwined with the economic prosperity of Europe. European travellers make up 87% of total inbound arrivals to Hungary, and the economic performance of Romania, Germany and Austria in particular will have a large impact on how the sector performs in the coming years. 

We predict there will be a steady growth for the upcoming 5 years, driven by solid economic growth and an increasing proliferation of low budget airlines which will influence travellers from countries such as the UK. However, the government must continue to keep itself open to foreign travel, and must work to encourage it by investing in infrastructure and provide a secure base for inward foreign investment. For investors, there has not been as much concentration from the large hotel chains (with Accor...

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Water

Hungary Water

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BMI View:  This quarter we have updated and expanded our water forecasts for Hungary, adding in new lines of data, including type of water source. We have substantially upgraded our treated wastewater forecasts based on improved government investment into advanced treatment facilities, and we continue to view the mains and sewage networks as the key future development areas, with losses remaining high, and a significant portion of wastewater not being collected.

The establishing of five regional utilities and over 400 municipal utility companies in the post-Soviet era, and the implementation of water charges being related to delivery costs resulted in a decentralised and incoherent water sector, with each individual municipality having autonomous control. This in turn led to inefficient and frequently overpriced water services. In addition, the maintenance and modernisation of networks was...

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