“Consumption-based growth is good in the short term, but in the long term, investments will bring economic growth,” said Minister for National Economy Márton Nagy at a recent conference. However, following the weak Q1 GDP growth already reported, the first quarter also brought some disappointing data on investments.
The volume of investments in the first quarter of 2025 fell by 12.1% compared to last year, according to the latest data from the Central Statistical Office (KSH). Investment volume also decreased compared to the previous quarter, with the value of investments decreasing by 3.4% at comparable prices.
According to the KSH summary, the manufacturing industry, as well as transportation and warehousing, contributed most to the decrease in investments. However, the decline was mitigated by investments in real estate and the energy industry.
The country has been in a bad position in terms of investments for more than two years now. The volume plunged in the fourth quarter of 2022, and this trend continued in 2023 and 2024. The volume of national economic investments last year was 14% below the 2023 level, with a decrease of 8.1 percentage points in the volume of construction investments and machinery and equipment investments pulling the total figure down by 5.7 pp.
The decrease in housing construction volume and the low level of state infrastructure investments are primarily responsible for the weak data. It is worth noting that Minister of Construction and Transport János Lázár halted most state investments in 2022, and this has had an adverse impact on the segment every year since.
“The first quarter GDP data already predicted that the turnaround in investments had not yet been realized at the beginning of the year, with the volume decreasing by 11.8% on an annual basis and 3.4% quarterly, based on seasonally adjusted data,” comments Dániel Molnár, senior analyst at economic think-tank GFÜ.
“This means that investments played a significant role in the weaker-than-expected first quarter GDP data,” he adds.
It is not yet clear to what extent the different fields contributed to the decline, but according to KSH, the manufacturing industry and the transport and warehousing sectors contributed the most to the decrease in investment.
“These are the two sectors that are most dependent on external demand. Our most important foreign market, the European economy, and Germany in particular has been struggling with competitiveness problems for a long time now, in which high energy prices and overregulation play a role,” Molnár stresses.
“This effect is also reflected in the export-oriented domestic manufacturing industry, reducing demand. The significant excess capacity in the sector encourages companies to postpone investments, but uncertainty, which has recently been reinforced by the unpredictability of customs policy, is also having an impact in this direction,” he says.
According to Molnár, a turnaround in investment dynamics requires a revival in external demand and an improvement in prospects. This could be facilitated by the start of economic growth, the conclusion of trade agreements between the European Union and the United States, and the conclusion of the Russia-Ukraine war.
“In the coming quarters, however, the impact of the Sándor Demján Program may also appear in the statistics, which may boost investment activity primarily among domestic SMEs. The arrival of EU development funds could provide further impetus,” the senior analyst adds.
Gábor Regős, chief economist at Gránit Fund Management, shares a similar view. Although the annual decline was expected, “one could have hoped for growth to start at least on a quarterly basis; that did not happen,” he points out.
“A company does not start investing now when it does not know whether it will pay off or whether there will be demand for its products, especially after a possible capacity increase,” Regős says.
In the meantime, the labor market also showed some worrisome signs. In April 2025, the average number of employed persons aged 15-74 was 4.6 million. The number of unemployed persons was 215,000, and the unemployment rate stood at 4.4%. In comparison, as of this March, the average number of employed persons in the same age range was 4.7 million, while the number of unemployed individuals was 211,000, resulting in an unemployment rate of 4.3%.
“While the March data indicated a more stable labor market overall, this cannot be said of the recent data; we did not expect the deterioration of the labor market environment in April,” says Márta Balog-Béki of MBH Bank.
“We cannot speak of a large wave of layoffs yet, but inactivity has increased. In addition, it should be noted that the working-age population has decreased by 37,000 people this year alone, and by 60,000 people in a year, which may also limit employment growth,” she warns.
According to Balog-Béki, the coming months may be defined by whether companies postpone their investment decisions amid uncertainty over tariffs; however, this is difficult to quantify at this time. MBH Bank expects an average unemployment rate of 4.4% for the year as a whole.
“We expect the number of employed people to remain around its current level in the coming months, with only minor changes expected from month to month,” argues GFÜ’s Molnár.
He voices an optimistic point of view, saying that the turnaround is expected in the second half of this year. In addition to the strengthening of economic growth, large-scale investments in production by automotive manufacturers such as CATL, BYD, and BMW may play a significant role, generating labor demand both directly and indirectly.
The recovery in labor demand may also improve the situation of job seekers, allowing the unemployment rate to start declining towards the end of the year, he says.
This article was first published in the Budapest Business Journal print issue of May 30, 2025.
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