ENERGY SECURITY BIGGEST CHALLENGE FOR HUNGARY’S ECONOMIC OUTLOOK

GERMAN CHAMBER CALLS FOR THE EUROPEAN ECONOMY TO REMAIN COMPETITIVE

Hungary’s economic competitiveness to a very large extent hinges on the government’s ability to ensure energy security for the country, according to the German-Hungarian Chamber of Industry and Commerce. In addition to energy costs, the security of supply is also for crucial businesses operating in Hungary.

German foreign direct investment is a key engine of Hungary’s economy. German businesses make up the largest investor community in Hungary, accounting for 21% of the total foreign direct investment inflow, according to data published by the National Bank of Hungary. The German-Hungarian Chamber of Industry and Commerce (DUIHK), the body representing German investors in Hungary, celebrated the 30th anniversary of its founding in January. The number of founders underwent spectacular growth, jumping to 925 from 35 three decades ago. The bilateral exchange of goods reached a value of around EUR 66 billion euros last year - around 10% more than in 2021 and an impressive 15 times as much as in the year the Chamber was founded, according to the Chamber's estimates.

Energy: the main challenge

The Chamber sees the issue of energy as the greatest current challenge for the economy and one of the decisive factors for the long-term competitiveness of German and Hungarian companies. "It's not just about the cost of energy, but also about security of supply. The latter is crucial for the country's energy sovereignty and is in both the common European and national interest,” András Sávos, president of DUIHK said at an event celebrating the Chamber’s anniversary.

Hungary relies heavily on Russian oil and gas imports and the government has been scrambling recently to diversify its energy sources, striking deals with Azerbaijan and Turkey, among others. Hungary receives more than 80% of its gas supply and 65% of its oil supply from Russia. Under a 15-year deal signed last year, before the start of the war in neighboring Ukraine, Hungary receives 4.5 billion cubic metres (bcm) of gas per year via Bulgaria and Serbia under a long-term deal with Russia.

Recently appointed Energy Minister Csaba Lantos stressed that Hungary's energy bill has risen from EUR 7 billion to EUR 17 billion in the wake of the current crisis. This amount corresponds to almost 10% of Hungary's total economic output, according to Lantos. "The era of cheap energy is over," the minister said at the event. "The European Union's responses to the war, which we believe were wrong, have made the energy supply insecure and caused energy prices to rise at an unprecedented rate," Lantos added.

His remarks echo the official government stance that blames the European Union for mishandling the crisis by imposing sanctions on Russia.

Lantos noted that the energy market has changed completely and the question is no longer just at what price countries can get energy, but whether they have enough energy at all.

Lantos confirmed that the government will remain committed to nuclear energy. In addition to extending the service life of the existing Paks nuclear power plant, it is a key question to also build Paks II so that the base load of electricity can be generated domestically in a climate-neutral manner.

Multiple threats

The President of the Chamber emphasized that energy is not the only risk for companies. Existing tensions have not eased: the vulnerability of international supply chains, the shortage of skilled workers and regulatory requirements in connection with climate policy goals continue to represent enormous burdens. It is therefore particularly important that economic players can rely on a predictable, stable and growth-friendly economic policy and regulatory environment, warned Sávos.

DUIHK welcomes the HUF 700 billion "re-industrialization loan program" just announced by the government, which will help boost private investment in times of rising costs and high interest rates.

The President noted that the Chamber supports all government measures aimed at facilitate an agreement with the EU to ensure that EU funds are extended to Hungary.

"We are convinced that regardless of different perspectives on the world and current events, our common aspiration and interest must be that the European economy, including Hungary and Germany, remains competitive in the long term, and that the fruits of economic prosperity benefit society as a whole."