Hungary - Country Commercial Guide
Market Overview
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Hungary is in Central Europe and had a population of 9,804,022 on January 1, 2023. The per capita income is three-quarters of the EU-27 average. Hungary is a member of the OECD (1996), NATO (1999), the European Union (2004), and the Schengen Zone (2007) and boasts a strategic location in Europe, easy access to EU markets, a highly skilled and educated workforce, and a sound infrastructure which have led companies such as GE, Arconic, Blackrock, UPS, Coca-Cola, National Instruments, Microsoft, IBM and many others to locate manufacturing and services facilities in the country.  There are approximately 450 wholly owned U.S. companies in the country, and U.S. affiliates employ approximately 110,000 Hungarians.  This makes the U.S. the second-largest investor in Hungary after Germany, in terms of employment numbers and after South Korea in terms of capital invested.

FDI in Hungary has helped modernize industries, create jobs, boost exports, and spur economic growth. Hungary’s cumulative FDI stock since 1989 totals more than USD 104 billion and is centered around key sectors such as automotive, IT, electronics, logistics, food processing and shared service center operations. To stimulate additional foreign investment, in 2017 the government lowered the corporate tax from 19% to 9%, the lowest in the European Union.

Despite an EU requirement, Hungary is still not a member of the Eurozone and has not set a target date. Hungary’s economy was also hit by the 2008-09 financial crisis, as export demand and domestic consumption fell, causing it to seek financial assistance from the IMF and the EU.

Hungary nationalized private pension funds in 2011 and 2014, which pushed financial service providers out of the system but also helped Hungary reduce its public debt and reduce its budget deficit to below 3% of GDP, as subsequent pension contributions were channeled into the state-managed pension fund. Increased EU funding, greater EU demand for Hungarian exports, and a resurgence in domestic household consumption have all contributed to strong real GDP growth in recent years. To boost household consumption even more ahead of the 2018 election, the government implemented a six-year phased increase in minimum wages and public sector salaries, reduced taxes on foodstuffs and services, lowered the personal income tax rate from 16 % to 15 %, and implemented a uniform 9 % business tax for small and medium-sized enterprises and large corporations. At the end of 2021 and before the national elections in April 2022, the government raised the minimum wage by 20% to EUR 563 and implemented measures which boosted households’ income. The average gross salary was around EUR 1,222 (Jan-Nov 2021).  As a result of public investments as well as an increase in domestic income, Hungary’s economy grew by 7.1% and its budget deficit amounted to 6.8% of GDP from the end of 2021 till the election of 2022. In 2023, according to the European Commission’s economic forecast, the budget deficit is expected to decrease to 4% due to temporary sectoral and windfall profit taxes (reaching 1.5% of GDP in 2023), as well as by revenue growth fueled by high inflation. The 2024 budget envisages a deficit of 2.9% of GDP next year and state debt falling to 66.7% of GDP. Hungary’s state debt (at 7.17% of GDP in 2023 June) remains high in comparison to EU Central European rivals. Pervasive corruption, labor shortages caused by demographic reductions and migration, severe poverty in rural regions, vulnerability to changes in export demand, and a high reliance on Russian energy imports are all systemic economic issues. The World Factbook (CIA)


The GDP grew by 4.6% in 2022 and is expected to slow to 0.5% in 2023 and 2.8% in 2024; this is reflected in the 2023 budget bill, which anticipated a slowdown compared to 2021. The main engine of growth will be domestic demand and increasing net exports. The government has increased the financing needs of the central budget from the original HUF 3.4 trillion (USD 9.7 billion) to HUF 4.1 trillion (USD 11.7 billion).   Exports amount to 80 percent of the country’s GDP, showing the competitiveness of Hungary and helping maintain economic growth. 

The rate of inflation was 15.3% in 2022, is expected to be 16.4% in 2023 and 4% in 2024, and the government projects it will be around 3% by summer of 2024. According to the National Bank of Hungary the rate of core inflation, which excludes volatile fuel and food prices, fell to 9.99% in October 2023.  Fluctuations in the exchange rate of the Hungarian Forint to other currencies make planning difficult. Much of the population was indebted in foreign currencies (mainly Euro and Swiss Franc), so the weakening of the Forint also significantly raised the burden of debtors, including households, the business sector, as well as the government. 

Both the government and the Central Bank expected inflation to gradually decline from the second half of 2023 due to base effects. Analysts noted that a combination of higher wage growth with persistently high energy prices could continue to de-anchor inflation expectations.

The Central Bank has embarked on monetary tightening to keep inflation expectations in check and noted that a more rapid fiscal consolidation would be required. As of 2022, Hungary’s current account has turned negative and posted a deficit of $4.7 billion.  The government expects this to increase to $10.4 billion in 2022.  Since October 2022, the Forint, has started to strengthen relative to major currencies and is about 350 to the U.S. dollar and 380 to the Euro as of November 30, 2023.  While a weaker forint supports export industries, analysts note increases in productivity, innovation, and technological improvement, as well as structural improvements, could sustainably raise competitiveness.

The government could introduce additional labor tax cuts to help address labor shortages,but would likely have to reduce spending and/or increase consumption and property taxes to compensate for such a change. 

Domestic demand fueled a strong rebound as Hungary emerged from the COVID-19 pandemic, but the surge is now jeopardized by the conflict in Ukraine. As the employment rate reached 74.5% and the unemployment rate fell to 3.98% in July 2023. Hungary began to face a labor shortage. Real wages have decreased due to the rising inflation. Labor shortages hit mostly the manufacturing, IT, retail, healthcare, and education sectors. The private sector was officially recorded to be short of 60,000 workers.  The most significant issues seem to be in the public sector since the number of unfulfilled jobs in healthcare has remained continuously high, the unfulfilled jobs in education have reached record levels and a new record labor shortage has reached the administrative-protection sector.  In January 2023, headline inflation hit a 20-year high of 25.7% after domestic pricing pressures have been building since mid-2021, in addition to global issues such as supply chain disruptions and rising food and energy prices. The inflation rate has started to decrease since January 2023, and the Central Bank expects it to remain under 10% by the end of the year. The government lowered employers’ pension and health care contributions to offset the impact of minimum wage hikes. The government has also set price caps for selected food items, in addition to setting households’ energy prices below the market price.  As of August 2022, this lower price applies up to a government-determined energy consumption, above which market price must be paid.

The conflict in Ukraine is a significant impediment to economic growth. Although direct trade with Russia and Ukraine is small (approximately 3% of total exports), the war has affected global and regional supply chains, exacerbating supply-side bottlenecks in the automotive industry. Hungary is heavily reliant on Russian energy imports, which accounted for around 80-85% of its gas, 80% of its oil and petroleum, and 100% of its nuclear energy in 2022. Consumer and corporate confidence began to drop at the start of the conflict. By the middle of June 2023, 2,793,820 Ukrainian refugees (equivalent to about 29% of the Hungarian population) had crossed the Hungary-Ukraine border and 36,315 had remained and registered for temporary protection. Although civil society organizations note that most of these refugees transited through Hungary to other destinations, those who remain could influence the labor market, especially in sectors where there are labor shortages, such as agriculture, manufacturing, and health.

The U.S. Department of Treasury terminated the Double Taxation Treaty with Hungary, which took effect on January 8, 2023, except for taxes withheld at the source and other taxes, for which it will have effect on or after January 1, 2024. According to experts, there will be negligible effects on the tax impact felt by U.S. and Hungarian companies because both are allowed to deduct taxes paid in foreign markets.  The impact could be limited to a few very specific cases involving investment dividends and intra-company employee exchanges (due to a 13% U.S. tax rate).  There may be some effect on U.S.-bound investments, but these would only be felt if the Hungarian company repatriated its profits and did not reinvest the money in the U.S. investment.

Expansionary fiscal policy has facilitated growth.

In early 2022, the government continued its expansionary fiscal policy, raising the minimum wage by 20%, lowering employers’ social security contributions from 15.5% to 13%, and eliminating their 1.5% contribution to training. Families with dependents received a personal income tax refund, while retirees earned a 13th-month pension; pensions were increased by a total of 8.9% in 2022 to adjust for inflation. These measures pushed the budget deficit to 85% of the total annual target by July, leading to fiscal tightening including freezing of certain expenditures, delaying projects, and raising revenues by imposing “windfall taxes” on eight sectors and reducing eligibility for the SMEs’ simplified tax system.  The measures were designed to meet this year’s budget deficit target of 3.9% of GDP.

In October 2022, Hungary’s Central Bank raised the emergency one-day deposit rate to 18%, the highest in the European Union, to shore up the falling forint amid a surge in inflation. As of November 21, 2023, after several cuts, the one-day deposit rate was 12.5%, and the base rate was cut by 75 basis points to 11.5%. Analysts expect the National Bank of Hungary to continue cutting the base rate.

The main engine of growth will be domestic demand.

Due to Russia’s war in Ukraine, Hungary’s previously strong post-pandemic recovery has slowed.   In the short term, the conflict will continue to drive up fuel and food costs and put downward pressure on private consumption and investment. Nonetheless, due to the tight labor market, private consumption will benefit from additional gains in real incomes. In 2022 and 2023, higher food and energy prices, as well as significant wage growth in private and some public sectors (including law enforcement and the military) are likely to feed into headline inflation. Inflation was expected to slow in 2023, owing to stricter fiscal and monetary policies that would restrict domestic demand growth. Even faster wage growth, along with high food and energy prices, could increase demand pressures and feed rising inflation expectations. The growth of private and public investment will be aided by significant residential building and refurbishing subsidies and domestic and foreign direct investment.  The government continues to seek to unlock EU funds frozen due to rule of law concerns.  The European Commission, in December 2023, assessed those judicial reforms enacted in 2023 had met relevant criteria, allowing Hungary to access about EUR 10 billion of cohesion funds previously withheld due to concerns about judicial independence.  Approximately EUR 21 billion in EU funds remain blocked due to corruption concerns and other “horizontal enabling conditions” involving the treatment of asylum-seekers, the LGBTQI+ community, and academic freedom.  Restrictions on Russian energy imports create another significant risk, though Hungary sought and received an exemption to EU sanctions on the import of Russian oil via pipeline.  

Expectations of inflation must be kept in check through policy.

To keep inflation expectations in check, the Central Bank is likely to continue monetary tightening. Hungary’s budget deficit will increase to 3.9% of economic output in the modified 2023 budget from a 3.5% goal set in the original budget law. The government will reduce the budget deficit to 2.9% of GDP, as stated in the 2024 budget and reduce the state debt to GDP ratio to 66.7%.  Energy price controls could significantly increase the state’s contingent liabilities. Direct income support to households most vulnerable to high energy costs could be an alternate strategy. Cuts in government spending elsewhere could be used to fund such assistance. Hungary - OECD.

Political and Economic Environment

For background information on the political and economic environment of the country, please visit CIA Factbook and Department of State website.