DUIHK Expects Swift Economic Recovery From COVID

Trade

András Sávos

The members of the German-Hungarian Chamber of Industry and Commerce (DUIHK) and other foreign investors are expecting renewed economic activity this year, both for the economy as a whole and even more so for their own business, according to the chamber’s latest economic survey.

András Sávos, president of the DUIHK, said at the presentation of the survey that the global outbreak of the coronavirus virus in 2020 had caused an unprecedented setback for the international and Hungarian economies.

“We are starting from a weak base, but there is hope that we can make up a significant part of last year’s weakening this year,” Sávos said.

As a result, far more companies are planning to increase headcount and investment than are planning to cut back, according to the survey, he added.

He also noted that it was encouraging that despite the economic crisis caused by the pandemic, the improving trend in business sentiment has continued in a number of areas, with the country’s performance above the regional average in several aspects and even placing it among the leaders on some.

Assessing the results of the study, Minister of Finance Mihály Varga welcomed the positive expectations of the chamber’s member companies, as they support the Hungarian government’s growth forecast of 4.3% for the Hungarian economy this year. According to the minister, the more than 2,800 German companies operating in Hungary, employing more than 200,000 people, have a significant role in this.

Virus Rebound

This year’s study by DUIHK specifically addressed the economic impact of the coronavirus. More than one-third of companies said they have already returned to pre-coronavirus turnover levels, which is expected to rise to more than 50% by the end of the year. In comparison, around 40% of respondents expect to get back only in 2022 or later.

One of the long-term consequences of the crisis could be the transformation of global production and supply chains. According to the survey, one in two companies in Hungary and the region plans to expand their supplier base and replace some suppliers.

In doing so, a significant proportion of those surveyed would look for new suppliers, mainly in the EU countries of Central and Eastern Europe; however, a large number of companies say they would also look for new suppliers in Western Europe.

The vast majority of the companies surveyed, some 88%, would reinvest in Hungary, the highest proportion yet measured in the chamber’s survey. This commitment is underlined by the fact that Hungary was considered the most attractive investment location out of 20 potential destinations in the domestic study.

After the economic downturn in 2020, most companies expect economic activity to pick up again this year, for the economy as a whole and even more so for their own business. Almost one in two respondents expect their business situation to improve in the next 12 months, with only 15% expecting business to deteriorate.

According to the survey, the positive economic outlook is encouraging companies to expand employment and investment. For both indicators, around 40% of respondents expect a higher level than last year, while only one in 10 plan to cut jobs and one in six to reduce investment.

Labor Concerns

Compared to previous years, the availability of skilled labor has improved somewhat, but one in two managers are still dissatisfied with the current situation. With the hoped-for economic recovery, labor shortages could increase again this year, with almost one in two respondents identifying this as a serious risk.

On average, companies reported a 6% increase in wage costs this year. DUIHK says that this is more likely to represent the lower boundary of actual wage dynamics. Business leaders’ satisfaction with the quality of both the vocational training and higher education systems has increased. Despite this positive change, the vocational training system’s performance is still below expectations, especially those of manufacturing firms.

In 2021, the trend of a gradual improvement in the perception of the Hungarian economic policy framework continued. In public administration and tax administration, Hungary’s business ratings have caught up with the leading Baltic States, and satisfaction is higher than the regional average on several other issues, the chamber notes.

In other areas, however, the situation remains unsatisfactory, despite the improving trend. There is still more criticism than praise on transparency in public procurement and corruption, and the rating is also below the regional average.

The quality of infrastructure has been rated positively by half of the responding companies this year, the highest proportion to date. In this aspect, Hungary also ranks highly in a regional comparison.

In the aggregate of the 16 countries surveyed across the region by the German Chambers of Commerce (AHK), Estonia is again the most attractive investment target this year, ahead of the Czech Republic and Poland. Hungary was once more in the middle of the field in 10th spot out of 20 destinations, although there were only minimal differences between scores in the top half.

DUIHK conducted its first Hungarian business survey in 1994. This year, the study was carried out between March 12 and April 16, with 206 business leaders taking part. Since 2006, the survey has been carried out simultaneously in several countries from the region by AHK. In 2021, a total of 1,454 participants took part. The international survey is coordinated and analyzed by DUIHK in Budapest.

This article was first published in the Budapest Business Journal print issue of  May 21, 2021.

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