The recent election in Hungary has drawn significant media attention, particularly the contest between incumbent Prime Minister Viktor Orbán and his challenger, Peter Magyar, leader of the TISZA (Respect and Freedom) party. On April 12, Magyar’s TISZA party succeeded in ousting Fidesz’s Orbán, marking the end of the latter’s 16-year tenure in office.
However, less focus has been placed on Hungary’s economic fundamentals, despite its strategic role in European supply chains. The country boasts a well-educated workforce, developed infrastructure, and a diversified economy.
Following a challenging period post-COVID-19, Hungary’s economic outlook is becoming more optimistic. Fitch Ratings projects a GDP growth of 2.3% for this year, with an increase to 2.6% by 2027, driven by rising government expenditures, domestic consumer spending, and significant investments in automotive and battery production as well as exports. Inflation is expected to drop from 4.5% in 2025 to 3.5% this year, although concerns about fiscal slippage remain. Fitch noted a negative shift in its Sovereign Outlook last December, predicting that the budget deficit widened to 5% last year and may reach 5.6% by 2026.
Malgorzata Krzywicka, Fitch’s director, highlighted that a mixture of pre-election fiscal incentives and social support, combined with an unpredictable growth landscape, will necessitate firm fiscal management for the incoming government. Hungary’s public debt stands at roughly 75% of GDP, the highest in the region.
This backdrop underscores the government’s emphasis on attracting foreign direct investment (FDI). In the past year, Hungary secured over €7 billion ($8.1 billion) in investments, primarily in the automotive, battery, and electronics sectors. There were 108 new project launches across various industries, including information technology and chemicals.
The United States has been particularly engaged, bolstered by the strong ties between Budapest and Washington. Since President Donald Trump took office, 17 new projects have been initiated in manufacturing, artificial intelligence, and other sectors. China continues to be a significant player, accounting for more than half of Hungary’s FDI in the last two years, highlighted by CATL’s €7.34 billion investment in a plant that will position Hungary as the fourth-largest global producer of electric vehicle batteries.
European nations, led by Germany, have historically been foundational to Hungary’s FDI, with Mercedes-Benz announcing plans to expand its €1 billion electric vehicle manufacturing facility in Kecskemét, which will eventually have the capacity to produce 350,000 vehicles annually. This initiative also includes a new R&D center expected to create an additional 3,000 jobs, focusing on hardware and software for electric vehicles.
In another development, BMW has revealed plans to invest approximately €2 billion in a new electric vehicle production facility. Additionally, Czech arms manufacturer CSG intends to acquire 49% of Hungary’s 4iG Space & Defence Technologies, part of the Rába Group, which produces heavy vehicles like Tatra trucks. This acquisition provides CSG with an effective 37% stake in Rába, facilitating the production of 2,000 trucks for the Hungarian military, alongside potential exports to Southeast Asia valued at up to €1 billion.
Analysts regard this arrangement as a significant restructuring of Central Europe’s defense sector, transforming Rába’s base in Györ into a strategic hub.
Governance Concerns
Fitch’s Krzywicka anticipates that FDI inflows will stabilize at around 2% of GDP between 2026 and 2027, predominantly in the automotive and electric vehicle battery industries.
Nonetheless, concerns persist regarding judicial independence, governance, the rule of law, and public procurement processes, which Transparency International suggests could hinder growth and the effective allocation of EU funds and FDI inflows.
Marcin Tomaszewski, a lead economist for the EU region at the European Bank for Reconstruction and Development (EBRD), commented that navigating the investment landscape in Hungary can be challenging, despite the various fiscal incentives available.