Hungary's economy is dragged into recession, Europe is determined to "turn its back" and push Russia's ally to the wall?

Hungary's troubled relationship with the European Union (EU) is contributing to the country's economic woes.

Hungary's economy is dragged into recession, the EU 'turns its back', pushing Russia's ally in Europe to the wall? (Source: visegradinsight.eu)

In the third quarter of 2024, Hungary officially reported a 0.7% quarterly GDP decline, following a 0.2% decline in the previous quarter. With two consecutive quarters of negative growth, Hungary has officially fallen into a technical recession. Meanwhile, the weak industrial performance of a series of important sectors, from agriculture , industry and construction... is continuing to affect the economic outlook of this EU member state.

Hungary is the only EU member that has maintained close relations with Russia since the outbreak of the Ukraine conflict (February 2022).

Prime Minister Viktor Orbán's hopes

Will Hungary's unexpected economic downturn dash Prime Minister Viktor Orbán's hopes as the 2026 parliamentary elections loom?

Mr. Orbán is eager to boost growth again this year to best prepare for parliamentary elections next year, but in the short term, the Hungarian economy is facing many difficulties to return to positive growth.

Recent reports suggest a tight race is underway between incumbent Prime Minister Orbán and opposition candidate, MEP Péter Magyar of the Tisza (Respect and Freedom) party. Mr Magyar’s party has been consistently ahead of the ruling Fidesz (Hungarian Civic Alliance) party in recent polls.

Prime Minister Orbán’s government is therefore hoping to quickly kick-start a recovery for an economy now teetering on the brink of recession. Of course, such an effort could be fraught with challenges, as Hungary’s industrial performance in 2024 has plunged so far that key sectors, from auto manufacturing to electronics to pharmaceuticals, are struggling with weak demand.

The latest official figures show that output in many Hungarian industries is the biggest drag on growth. The Central European country’s economic output fell by a sharp 3.1% when measured in working days, while industrial output fell by 3.9% year-on-year in the January-October period, the Hungarian Statistical Office reported.

Analyzing the data, the Hungarian Ministry of Economy pointed to the “complex” regional environment as the main reason for the poor performance. The simultaneous economic downturn in several European countries is putting pressure on demand for Hungary’s export-oriented industrial output.

The strongest impact on the Hungarian economy is the “acute deindustrialization” taking place in its leading partner - Germany, when the region's number 1 auto industry was forced to cut production, due to a sharp decline in orders and high energy prices, after the outbreak of the Russia-EU conflict.

In fact, Hungarian manufacturers are heavily dependent on orders from German factories, especially companies in the automotive industry, which are currently facing serious obstacles. An analysis by the financial group ING published in early November 2024 showed that industrial production volumes in Hungary were 4.8% lower than the average monthly output in 2021.

Thus, the sharp decline in demand is a major obstacle to the growth of Hungarian industry. In November 2024, the Dutch Central Bank also published a study showing that the capacity of Hungarian industry will continue to deteriorate in the fourth quarter of 2024.

“The combination of fragile domestic consumer confidence (which could weaken further as the forint continues to depreciate), market caution and sluggish business investment further darkens the outlook for Hungary,” ING said in its analysis, adding that “Hungarian industry is almost certain to become a significant drag on the country’s GDP growth in 2024, which is likely to be only 0.5-1.0%.”

Announced on November 15, the European Commission (EC) estimated that Hungary could achieve real GDP growth of only 0.6% in 2024, with an assessment that "slow investment is the underlying factor leading to this poor performance".

Specifically, the EC cited - delays in planned public investments and weak business confidence as the main factors that affected Hungary's economic growth over the past year; along with weak order demand from important trading partners, for the country's main export items, such as machinery and transport equipment.

The conflict continues to deepen.

Meanwhile, just entering the first days of the new year, Budapest received bad news when the EU "brutally" refused more than 1 billion Euros in funding from the union's funds due to the reason of not implementing the reforms as requested. This is the first time such a decision has been given to a member state.

Like other countries in Central and Eastern Europe, Hungary has historically received significant EU funding, which has helped boost GDP growth and support fiscal and debt figures.

But since the end of 2022, the EU has blocked around €6.3 billion in support for Hungary, citing violations of the fundamental values ​​and standards in force in the EU, with risks related to the public procurement system being a major issue. The EC has therefore decided to permanently revoke the entitlement to €1.04 billion, as the agreement expires on 31 December 2024.

“If Budapest is unable or unwilling to meet the remaining conditions set by the EU for disbursement, Hungary could eventually lose a significant amount of grants and low-cost loans,” Moody's Ratings analysts said in assessing the country's credit rating and deciding to downgrade its debt outlook from "Stable" to "Negative" in late November 2024.

Moody's also warned that the funds frozen by the EU could reduce economic growth and worsen the central European country's existing debt problems.

In response, Budapest insists that such sanctions are the result of political disagreements with the EU, with Prime Minister Orbán seeking to pursue a more economically neutral strategy towards the alliance and Western rivals, such as Russia and China.

Previously, the head of the Hungarian government has also repeatedly criticized the bloc for its approach to China's electric vehicles, which he believes - could lead to an "economic Cold War" with Beijing.

According to the Financial Times , in December 2024, Hungary's EU affairs minister János Bóka analyzed - "it is difficult" not to understand the withdrawal of grants as "political pressure", adding that Budapest will act to "overcome this discrimination".

In early December 2024, Hungarian Prime Minister Viktor Orban threatened to veto the EU's next seven-year budget if the bloc did not release frozen funds for Budapest.

The conflict continues to deepen, making the EU-Hungary relationship seem to be on the verge of confrontation, as disagreements continue to increase in the already complicated relationship. The latest developments mark a new chapter of extreme tension, in the context of the unstable EU-Budapest relationship - which has lasted for decades and is not known when it will be resolved.

Hungary has not only been accused by the EU of "violating the bloc's democratic principles and the rule of law", but has also extended to many other issues such as military and financial support for Ukraine... Hungary, under the leadership of Prime Minister Viktor Orbán, has repeatedly disagreed with the alliance on important issues, especially on its stance towards Russia and the conflict in Ukraine.

While the EU has imposed economic sanctions and visa restrictions on Russia, Hungary has maintained a softer stance towards Moscow and repeatedly called for negotiations. Hungary's stance has upset some EU members, with some even calling for Budapest to leave the organization and form a union with Russia.

The rifts widened further when Prime Minister Orbán visited Russian President Vladimir Putin in Moscow in July 2024 while he was holding the rotating EU presidency (June-December 2024). The conflict also multiplied when Mr. Orban publicly expressed many opposing views between Budapest and Brussels. The Hungarian Prime Minister frankly stated that - Europeans want peace, but "EU leaders want war".

The latest development is that Ukraine has suggested it is ready to "take Hungary's place" in the EU and NATO, after the Hungarian Foreign Minister criticized Kiev for shutting off Russian gas transit, causing difficulties for many economies in the 27-nation bloc. "If Hungary prioritizes strengthening relations with Russia over the EU and the US, Kiev will be ready to fill any vacant position...", the Ukrainian Foreign Ministry announced on January 8.

Budapest has not yet commented on Kiev's suggestion. But despite the EU's latest moves, the head of the Hungarian government has repeatedly stated frankly that the main victims of the EU-US-led Ukraine strategy are "the European economy and people", and that everything his government does is to protect the people and the economy.

Source: https://baoquocte.vn/kinh-te-hungary-bi-keo-xuong-vuc-suy-thoai-chau-au-quyet-quyet-turn-back-don-dong-minh-cua-nga-den-chan-tuong-300841.html