Based on a report by the European Bank for Reconstruction and Development (EBRD), Oeconomus points out in its analysis that the performance of the automotive sector is one of the reasons why the downturn in the Hungarian economy may be less severe this year than previously expected, while the outlook for next year is more positive. At the same time, they warn that the domestic presence of German car manufacturers also entails vulnerabilities, Világgazdaság reports.
Hungary’s economic prospects for next year have improved significantly, as acknowledged by the latest report from the EBRD, expecting the country to achieve a 2.8 percent growth in 2024, driven by retail trade and consumption. Oeconomus‘ analysis examined the EBRD’s September report, revealing that
the downturn in industry has been eased by the automotive sector, albeit with some minor vulnerabilities.
In the first half of the year, the Hungarian economy contracted by 1.7 percent, but for the year as a whole the contraction could be only 0.2 percent. This contraction has occurred as a result of the economy being dragged down by weak external demand, a difficult fiscal situation, and the delay in EU funding. However, the bank had previously expected a more significant contraction both this year and next.
The analysis also points out that Hungary’s fate, like that of other economies in central and southeastern Europe, is closely intertwined with that of Germany, and
the EU automotive industry’s ability to cope with rapid technological change will be amplified by the region’s performance.
In the region covered by the EBRD report, 48,000 jobs were created between 2020 and 2023, by greenfield FDI (foreign direct investment) projects related to electric vehicles, but the analysis also points out that overall, the lack of sufficient productivity improvements is reducing the competitiveness of the Hungarian economy against its advanced European and emerging market competitors.
The Oeconomus analysis finds that the EBRD is accurate in its assessment of the importance of the automotive industry in Hungary, as it has indeed become a main pillar of the manufacturing sector.
The steadily growing vehicle manufacturing industry reached a record investment value of HUF 613 billion (EUR 1.6 billion) in 2022.
However, it also points out that there are 700 automotive-related companies in the Hungarian economy, and the sector’s contribution to GDP is close to four percent, far below the exaggerated estimates often published in the financial press.
The number of people employed in the sector is 160,000, or 3.4 percent of the workforce. Moreover, the manufacture of transport equipment and electrical equipment has managed to grow even as the industry as a whole has shrunk. This demonstrates the sector’s resilience to mitigate adverse trends in industrial and economic performance.
At the same time, the fact that the vast majority of plants are foreign-owned and the finished product is almost entirely exported poses a risk. This is illustrated, for instance, by the latest value-added data for 2019, which is still the most recently available. While Germany accounted for more than 52 percent of the EU’s value added at factor cost in the motor vehicle, trailer and semi-trailer industry, the Czech Republic, Poland, Hungary, and Slovakia accounted for between two and four percent. This is why it is of paramount importance that the countries concerned gradually move up in terms of industrial value added.
Via Világgazdaság, Featured image: Pixabay