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Editorial: German Investors Mark Hungary’s Economic Card

Analysis

Image by Vincent Grebenicek / Shutterstock.com

For all the fanfare made of Asian investments (think of our Korea Country Focus in the last issue or our China special back on March 10), they are relative newcomers to Hungary’s foreign direct investment block.

The Germans, however, have been here since before the change in regime in some cases. They are genuinely, if you will pardon the pun, invested in the success of the country. Or, at the very least, in the continued success of their businesses in this country. That’s not exactly the same thing, but it does head in broadly the same direction.

It means a certain weight is given to the opinions of the German-Hungarian Chamber of Industry and Commerce (DUIHK). The business organization is unusual for a bilateral chamber on two grounds. Firstly, it is partly funded by the German state. Secondly, it dwarfs all the others in terms of membership. According to its website, it has some 900 members. Little wonder, then, that in previous years, when the chamber has presented survey results, there has frequently been a high-ranking government member in attendance, often (though not exclusively) Minister of Finance Mihály Varga. Its 30th Anniversary Gala Dinner on June 2 is due to be attended by President Katalin Novák.

But back to business. The latest German chamber sentiment survey was presented at the end of April and makes for interesting reading. German firms often seem more bullish about how accommodating the Hungarian economy is to their needs and how predisposed they are, therefore, to reinvesting. In this year’s survey (based on the answers of some 250 executives from DUIHK member companies and some other foreign chambers in Hungary), 79% said they would choose Hungary as an investment location again. While that sounds impressively high, it is markedly down from the record levels of the last couple of years of 88%. One of the attractions of the German survey is that it is conducted simultaneously in chambers across the region, making comparisons very straightforward. Some of those countries saw scores of 90% or more on reinvestment.

Other figures leap out. A 10-year-long trend of improving satisfaction with the economic policy framework came to a halt this year. Members are less happy with the tax system and the predictability of economic policy. DUIHK’s “Investment Climate Index,” calculated annually based on the survey results, fell this year from six to two points (on a scale of -100 to +100).

There are some brighter spots. Despite rising wages and an expectation that labor costs will increase by almost 15% this year (significantly more than in Poland, the Czech Republic, and Slovakia, where the wage increase is estimated at 8-10%), Hungary still has the third lowest wage costs in the EU, according to the chamber. That means its cost advantage for exporting companies, in particular, will continue to exist for some time, even with solid wage growth. And, while it is true that the situation of the national economy was described as “significantly worse” than in spring 2022, and the outlook for the next 12 months is also seen as fairly weak (one in two companies expect the situation to deteriorate, while only 13% expect it to improve), this ratio is already noticeably better than last fall.

Nobody is suggesting that German businesses are about to make a run for the hills and over Hungary’s borders to pastures new; far from it, in fact. But, equally, it is clear that, as the chamber notes at one point in the survey, there is a need for action on the part of the Hungarian government.

Robin Marshall

Editor-in-chief

This editorial was first published in the Budapest Business Journal print issue of May 5, 2023.

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