One in five German companies in Hungary considering redundancies this year

• The biggest risk is seen by companies in weak demand and labour costs.


• Skilled labour shortages, energy prices and exchange rate fluctuations also continue to weigh on many companies


• In terms of the quality of the business environment, the positive trend of recent years has not continued in several areas, such as economic policy predictability and legal certainty.


• While local suppliers, research and development conditions and infrastructure were rated more positively than in previous years, with managers' satisfaction in these areas higher than the average for the CEE region.


• The weak economic framework and subdued business prospects are not driving companies to significantly expand their workforces. 27% of respondents would increase the number of employees (2023: 33%), while 19% plan to cut staff (2023: 13%)
.

In presenting the results, András Sávos, President of DUIHK stressed that the business survey provides both companies and economic policy makers with reliable information on the situation of companies and expectations regarding the economic policy framework - for the 30th time in 2024.

241 companies in Hungary took part in the 2024 survey, while a total of 1,292 managers completed the questionnaire in parallel surveys in 15 other countries in the region.

Investment and employment may remain at previous year's level

Only 14 percent of respondents rated the state of the Hungarian economy as good and 41 percent as bad, a worse rate than last year. But expectations for this year's outlook have improved markedly. While the balance of positive and negative responses was -51 percentage points in 2022 and -36 percentage points in 2023, it has improved to -4 this year, which is still far from a level that indicates a tangible economic growth. The weak national economic environment is also weighing on companies' own performance. Only 27% consider the current business situation to be good this year (39% in 2023), while most (59%) feel it is only satisfactory and 14% feel it is poor. For this year, 29% expect the business situation to improve, but 25% still expect it to deteriorate.

The majority of 2023 say the business situation will be better than 2023, while only 20% expect it to be worse than 2023.

The picture is very similar for businesses' employment and investment intentions, with both expected to remain around last year's levels. In terms of both the national economy and own business trends, Hungary's survey results are at most average in a regional comparison, but typically weaker than in most countries in the region.

Wage increases of 11 percent on average expected

Labour market aspects are always a priority in DUIHK surveys. Dirk Wölfer, the author of the study, pointed out that the shortage of skilled labour and wage cost developments have been the main challenges for years. The former is still a major concern, even if it has eased slightly, especially in the wake of the economic slowdown. Despite this55% of respondents are dissatisfied with the labour supply - putting Hungary in line with the regional average. According to the survey, labour shortages are particularly prevalent among manual workers in manufacturing, information technology and research and development

The second challenge is labour costs. Although the cost level in Hungary is among the lowest in Europe - only about a third of German labour costs in 2023 - the sharp rise in recent years cannot be offset by a similar increase in productivity. However, passing this on to selling prices would undermine competitiveness, Wölfer warned. Companies now expect another 11% rise by 2024, even though inflation is likely to be much lower. By comparison, the survey found that wages are expected to rise by "only" 8.2% in Poland and 6.7% in the Czech Republic.

Taxation

In terms of tax administration, the perception of business leaders has improved this year, with Hungary leading the region. Satisfaction with the tax burden has decreased this year. While the most important corporate taxes are low by international standards, companies are also subject to a number of sectoral special taxes and "extra profit taxes", which clouds the picture. The rating of the tax administration has further improved this year and ranks highly in regional comparison.

Photo by FREEPIK