The Economic Crystal Ball: Expectations and Challenges for Hungary in 2024
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Economic experts highlight the changes they expect in Hungary’s economy for the upcoming year, discussing GDP, inflation, foreseeable changes in national legislation and the development of relations between Hungary and the European Union.
“I think that 2024 will perhaps be a little more lively than 2023, but I do not expect a significant acceleration since we are experiencing a slowdown in the whole of Europe, and business confidence is not very high either,” shares Tamás Lőcsei, CEO of PwC Hungary, in discussing the tendency of mergers and acquisitions for the 2024 year.
As for Hungarian GDP, inflation rates and EU/HUF exchange rates, Lőcsei expects that “Hungarian GDP will be between 3-4%, inflation may be around 5-6%, and the exchange rate of the euro will not exceed HUF 400 on average.”
Károly Radnai, CEO of Andersen, identifies one crucial factor that emerged late last year as central to Hungary’s GDP in 2024.
“Thanks to the agreement reached with the European Commission at the end of 2023, a couple of long-postponed and extremely important EU co-financed programs can finally start, and this will surely have a positive effect on GDP as well,” he says.
“[Some challenges are] a budget deficit [the scale of] which hasn’t been seen for decades, still extremely high inflation and, at the same time, very high interest rates, all of which act against investments. [...] There are not many options; either taxes must be raised, or expenses must be reduced because, at the moment, it is not clear what would cause GDP to jump,” Radnai adds.
Relations between Hungary and the European Union will be a focal point this year, even more so than usual, given that Hungary will hold the rotating Presidency of the Council of the European Union for six months starting July 1.
“Perhaps the European Union elections [due between June 6 and 9] can bring substantial improvement in the relationship between Hungary and the EU,” Lőcsei suggests. “The Hungarian presidency will be a very important semester. I expect progress on matters important to Hungary, such as the accession of Romania and Bulgaria to the Schengen Zone, migration, competitiveness, family policy, energy policy, and enlargement and cohesion policy,” he says.
“The relationship between Hungary and the European Union is complicated, but in my opinion, Hungary will receive significant additional resources during the 2024 process and in the following years as well,” Lőcsei continues, specifically mentioning the EUR 780 million advance as part of the Recovery and Resilience Facility (RRF) REPower EU loan package, as well as the EUR 445 mln transferred to Hungary on Jan. 2 as part of the Cohesion Fund.
Taxes and Legislation
Another extensively discussed area of upcoming changes in Hungary is speculation of new legislation and tax changes that could affect domestic businesses, with a spotlight on the introduction of the global minimum tax to Hungary, as well as the launching of the e-VAT system.
“As part of the digitization efforts of the tax authority, the e-VAT system launched in 2024 will be the first important milestone [...], but we must not forget that the EU’s initiative called “VAT in the digital age” is still subject to negotiation between the member states, highlights Gábor Farkas, a tax partner at PwC.
“If the EU proposal package is accepted, it could drastically change the electronic invoicing system of both Hungary and other member states,” he warns. Farkas also expanded on the introduction of global minimum tax regulations in Hungary.
“Although [the rules] entered into force in Hungary on Jan. 1, many ministerial decrees containing the detailed rules have not yet been announced, and additional interpretation aspects developed by the OECD may still be published in 2024.”
Radnai agrees. “The impact of the global minimum tax will only be felt from 2025, from which the state hopes to generate additional income of HUF 90 billion-100 bln, so the only significant change compared to previous tax levels will be the increase in excise taxes, which went into effect on Jan. 1,” he notes.
“It would be preferred that the sectoral special taxes be continuously reduced and that no new types of taxes be created,” Radnai adds. “These are extremely damaging to the credibility of Hungary and trust in the legislation among both foreign and domestic investors,” he explains.
Another development for the upcoming year will be the expected change in corporate sustainability reporting in accordance with the Corporate Sustainability Reporting Directive adopted by the European Union in November 2022.
According to an analysis made by Schneider Electric, companies employing more than 500 workers must begin collecting and analyzing data about sustainability risks and opportunities, as well as its impact on people and the environment, with the first mandatory reports due in 2025.
The CSRD initiative will not, however, affect those companies covered by the Non-Financial Reporting Directive, whose first reports are due in 2026. The NFRD requires public disclosure documents such as annual reports, sustainability reports, and integrated reports to include environmental matters, social and employee aspects, respect for human rights, anti-corruption and bribery issues, and diversity among the board of directors.
In terms of likely growth sectors, the experts the Budapest Business Journal spoke with mentioned an array of industries with economic potential.
“Industry 4.0 has not yet been incorporated into the Hungarian economy, although we started preparations early with the Irinyi Plan,” mentions Lőcsei. He»expresses optimism about the agricultural and food processing, retail, business services and tourism sectors.
Radnai sees potential in “Energy investments, primarily investments in developing electricity networks.”
Lőcsei had one final thought. “It is important to further and continuously strengthen our education and research and development activities, even if we have to change many stakeholders who stick to traditional methods in one way or another.”
Editor’s note: We also invited Deloitte, EY, and KPMG to contribute to this article, but they either declined to do so or did not get back to us before our deadline.
This article was first published in the Budapest Business Journal print issue of January 12, 2024.
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