Hungarian Business Confidence Falls to Pandemic Lows

BUDAPEST (Reuters) – Hungarian business confidence dropped in January to levels not seen since the COVID-19 pandemic, according to economic think tank GKI. This decline is attributed to worsening prospects in retail and services.

The survey, which mainly assesses small business expectations, contradicts the optimism from Prime Minister Viktor Orban’s cabinet regarding a potential economic rebound in 2025 after two years of stagnation.

Orban, facing an election in early 2026, anticipates that Hungary’s economy will grow by 3.4% this year, surpassing the European Commission’s 1.8% forecast and GKI’s previous 2.5% projection made in December. However, GKI now believes this outlook is overly optimistic.

In January, GKI’s business confidence indicator dropped to -13.9, its lowest since November 2020, with all subcomponents remaining negative, as noted by economist Raymund Petz. He indicated that this indicator has been a reliable predictor of quarterly economic growth in recent years and signals ongoing weakness for the first quarter unless a significant rebound occurs soon.

Petz also suggested that the fourth-quarter GDP is expected to be poor, showing negligible growth, and without a major turnaround in February, significant changes in the first quarter are unlikely.

Consumer sentiment deteriorated in January, with Hungarians becoming more pessimistic about their financial conditions and the overall economic outlook for the next year according to the survey.

Hungary’s economy, heavily reliant on exports within the European Union, is facing challenges due to declining demand in the euro zone, its primary trading partner. Potential U.S. tariffs on European imports, particularly automobiles, could further hinder growth.

Orban is relying on an economic recovery driven by wage and pension increases, tax rebates for families, financial support for small businesses, and housing initiatives.

However, according to Petz, small businesses currently see no significant improvement in their prospects, with retailer expectations continuing to worsen over recent months.