The Black Box of the Hungarian Economy

By Viktor Szentkiralyi

Countless analyses are published regarding the state of the Hungarian economy.

The predictability of the economy and planning efforts have been hindered by the fact that in recent years, key economic data lacked sufficient transparency, there was no genuine professional or analytical debate on the direction of economic development and its long-term impacts, and economic measures were unpredictable. Even today, the true state of the economy remains unknown.

The anticipated arrival of significant EU funding may bring progress in certain areas, but based on current information, these shifts will only be sufficient to halt the further deterioration of the present situation.

Depleting Resources

The foundations of economic development appear unchanged; the latest analysis by the Economic Research Institute states that the basis of extensive growth has so far been the inflow of capital, alongside an increase in the size of the workforce.

Capital inflow may decline in the future, given that the pool of available labor has plateaued and begun to shrink, partly due to demographic indicators.

The study concludes that future economic expansion can primarily be fueled by productivity growth.

Hungary in the Productivity Race

In terms of productivity, Hungary lags behind its regional (Central European) peers.

The highest growth was recorded in Romania, while Hungary ranked second to last in terms of growth measured across all countries in 2025. Taking the year 2012 as 100%, Romania achieved 148% growth, while Hungary reached 120%.

Without disputing the study’s findings, several factors influence the development of a country’s productivity.

The composition of the industrial structure, the development level of services, the return on capital investment that generates further investments, the level of energy and raw material costs, the size of the workforce, the qualification levels of labor, the geographical distribution of the workforce, the general health status of the workforce, and countless other conditions—the fulfillment of which is not an economic, but a political and social question.

The Hungarian industrial structure can currently be considered unfavorable, given that the manufacturing industry dominates, accounting for 90-92% of total output.

Within this, the automotive industry is the most significant, alongside the ramping up of battery manufacturing capacities between 2020 and 2025, backed by substantial government support.

A significant portion of Hungarian industrial companies are under multinational ownership and are heavily exposed to shifts in sales within these sectors at both the European and global economic levels.

Large Corporations and Productivity

Among multinational corporations, a certain level of integration of small and medium-sized enterprises was observable only in the automotive industry, which also brought about an increase in productivity, though on average, large corporations still possess 2-3 times higher productivity.

In the battery industry, no significant integration of Hungarian small and medium-sized enterprises into the value chain is currently perceptible.

Overall, it can be stated that a significant part of Hungarian industry does not connect to the more lucrative, higher-income-generating segments of the value chain (research and development, sales).

International large enterprises provide nearly 30% of employment in terms of workforce size, but further developing their productivity is difficult due to their already high levels of automation.

The Productivity Reserve

If we accept that productivity growth is the future engine of economic development, then the development of small and medium-sized enterprises must be the primary economic objective.

In Hungary, the number of active workers is approximately 4.7 million; around 3 million people work for small and medium-sized enterprises, making these types of companies the true reserve for productivity growth.

In our previous article regarding the development of Hungarian small and medium-sized enterprises, we outlined the main problem areas, and it appears there has been no significant change in these domains since then.

• Capital shortage, which blocks the path to mechanization, research and development, shifting the product structure, and the continuous financing of operational activities.

• High public burdens; taxes and contributions on wages remain high and are difficult to manage within the current profit structure.

• Vocational training does not turn out new skilled workers in the appropriate quality and composition.

• Lack of leadership competence development. Modern management and leadership training are not accessible to the managers of small and medium-sized enterprises; managerial activity revolves around a kind of daily damage control and does not allow for the foundation of medium- and long-term developments.

• High energy and raw material prices, and the vulnerability of the Forint exchange rate against the EUR and USD.

• Low digital coverage.

• Shortcomings in public procurement, scale limitations, financing issues, and a lag in guarantee-backed capacities.

It can be stated that productivity growth is primarily expected from small and medium-sized enterprises.

At the same time, the improvement of conditions also depends on the development of other sectors of the national economy—such as education, transport, and healthcare—meaning the exact starting point where support for small and medium-sized enterprises should begin is not clear-cut.

• The share of accessible public procurements must definitely be increased.

• Integration into the multinational environment must definitely be facilitated.

• Self-equity sufficiency must be increased, and improvements in the occupational safety environment must be promoted.

• The financial appreciation of manual labor must be improved, alongside balancing the rights between employers and employees.

The debate may continue, but the functioning of the economy will not wait for the final outcome of these arguments; it continuously induces changing conditions, and whoever waits for a single grand, centralized solution will fall behind in an already difficult competitive landscape.

Small and medium-sized enterprises must therefore continue to rely on their personal flexibility, the agility that stems from their size, and the vital capital of their previously acquired business relationships.

Edited by the Hungary Now Team