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The loosening of Germany’s debt brake is not only crucial for the country itself but also for Hungary, whose economy is deeply intertwined with one of Europe’s most advanced economies. Germany’s two-year recession has already been weighing on Hungary’s economic performance, and experts believe that the newly adopted budget package could serve as a lifeline for the Hungarian economy, Világgazdaság reports.
The fiscal package introduced by Friedrich Merz, Germany’s next Chancellor and Leader of the CDU party, is expected to mark a significant shift in Germany’s economic policy, which has so far been firmly rooted in fiscal austerity, even during the most challenging recession years. The package could help reinvigorate Germany’s economy after two years of stagnation.
A rapid increase in infrastructure spending could boost Germany’s GDP by 1% in the short term. Additionally, the recovery in German investment could have a positive impact on the Eurozone’s overall GDP.
Speaking at the annual economic session of the Hungarian Chamber of Commerce and Industry, Prime Minister Viktor Orbán emphasized that part of the plan includes Germany ramping up its defense spending—a development he was hesitant to judge as beneficial for Hungary in the medium term, as it marks the first time since World War II that Germany is taking such a path. “In the short term, however, the package will be good for Hungary,” the prime minister stated.
Germany is Hungary’s most important trading partner, accounting for 25% of Hungarian exports. When the German economy struggles, Hungary immediately feels the impact through declining orders.
The decision to ease Germany’s strict fiscal discipline is undoubtedly good news for Hungary’s economic outlook and growth prospects.
Germany’s weak economic performance has been holding back Hungary’s growth for some time, so the economic shift driven by fiscal stimulus could have positive spillover effects here as well,”
said Dániel Molnár, a senior analyst at the Hungarian Economic Development Agency (MGFÜ). He highlighted three key points regarding the decision.
There is still limited information on how the package will be implemented and utilized. More clarity is expected after coalition negotiations, meaning the real economic effects will likely be felt later this year or early next year. However, the package could immediately improve economic sentiment, boosting confidence among both consumers and businesses. This could drive domestic demand and investment, potentially having a significant impact this year. Germany’s economic struggles are not solely due to fiscal austerity but also stem from excessive regulation, high energy costs, and infrastructure issues that have hampered growth.
But at least things are now moving in a positive direction for Hungary’s economy,”
the analyst noted.
Péter Koncz, senior analyst at Századvég Economic Research Center, also welcomed the easing of Germany’s debt brake, arguing that excessively tight fiscal policies had been a key reason why Germany had not returned to growth since the outbreak of the war in Ukraine. He added that, globally, many countries are adopting more flexible fiscal policies to enhance their competitiveness in an increasingly polarized economic landscape.
“Germany’s is the strongest economy in the EU, so its recovery is vital for both the European Union and Hungary. In the medium term, a German economic rebound could have a positive effect on Europe’s economy as a whole,” the expert concluded.
Via Ungarn Heute, Világgazdaság; Featured picture: Wikipedia