Page 44 - CE Outlook Regions 2024

3.3.5 Construction
Hungary’s construction sector is expected to contract 4-5% in 2023 after a 6.3% growth a year earlier. Rising energy and material prices have led to cost overruns and delays, while high borrowing costs have dented demand. Public infrastructure investments have declined as Hungary was cut off from EU funds in 2023, and austerity measures also dampened the construction sector, with HUF2-3 trillion of public investments suspended.
Residential home construction has dropped to a multi-year low; investments in the office market have stalled, with vacancies rising even in the leading Budapest office market. It is mainly the industrial commercial property market that is keeping the market afloat, driven by booming online commerce and strong demand for last-mile logistics.
The outlook looks grim as new orders continued to drop in October by double digits and total order stock was 31% lower at the end of October than 12 months earlier. Flagship projects such as the Paks nuclear power plant and new EV battery plants could provide respite to the market.
3.3.6 Major Sectors
Hungary’s agriculture recorded an above-average harvest in 2023 after the worst drought in more than 100 years a year earlier and it dampened the economic decline in 2023. Excluding the farm sector, Hungary would have recorded a 4% y/y contraction in Q3, compared to the 0.4% headline data. In 2024 the sector’s contribution to GDP consequently could be lower due to the high base. Hungary is a main beneficiary of the CAP, and the suspension of EU funds was not extended to agricultural subsidies.
Low productivity, rising input prices, and high energy utilisation are a major drag on the food industry, which is eased somewhat by regulatory headwinds. The government has sought to tilt the playing field in the retail sector in favour of local companies by slapping foreign multinationals with higher taxes and other administrative burdens.
Economic recession dampened the mood for players in the tourism industry after a strong post-pandemic recovery. In 2022, 14.2mn visitors spent close to 40mn guest nights in Hungary last year, close to the 2019 record, but 2023 is expected to fall short of that due to the weaker performance of domestic tourism. Tight-pursed households, feeling the pain of double-digit real wage decline in the first half of the year, postponed or shortened vacations.
Tourism will continue to enjoy a preferable status as Orban’s family members and friends have established important stakes in the strategic industry. In recent years BDPST, a company owned by his son-in-law,
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