Hungarian businesses may close if the situation does not take a drastic turn

The head of one of Hungary’s largest business associations expects a stormy economic year in 2023. The outlook for the beginning of the year in particular is uncertain. Increased energy prices may fully absorb by then, while demand is expected to further decline. As a result, many businesses may close down, restructure their entity, or shut down unprofitable divisions.

Tough times ahead

Based on the general business sentiment indexes, optimism was not a characteristic trait among enterprises towards the end of 2022, László Perlusz, Secretary General of the National Association of Entrepreneurs and Employers told Portfolio.hu. He pointed out:

“There are many sectors and professions where the agenda is not about business planning for the next year, but about dissolution.”

This is the case for several tourism and catering companies, many service sector businesses and energy-consuming industries, said Perlusz, mentioning also chemical and steel industries.

Hotel catering Miskolc City Hotel, Hungary, catering businesses

Photo: Facebook/City Hotel Miskolc

This current energy crisis is triggering a change in companies to move towards more sustainable business models. Hungarian small and medium-sized enterprises are more vulnerable, but they can be adaptive, so we can expect major changes in the market, he said. Many companies will close down or restructure, change their profile or get rid of unprofitable businesses and adopt sustainable technologies, which could mean job cuts.

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“Therefore, it is extremely important to maintain the subsidised programmes that encourage this progress and modernisation. The low, fixed 5 percent interest loan products in the Széchenyi Card Programme and MFB or Eximbank are just some examples,” said László Perlusz, speaking in favour of state support.

Inflation remains high

The first quarter of 2023 could be crucial, according to the secretary-general of the advocacy organisation. Perlusz believes that if the Russian-Ukrainian war escalates further, it will have again a negative impact regarding European economies.

small enterprise Hungarian, business, businesses

Photo: Facebook/Pamutti Textil

The confederation currently expects inflation to remain persistently high. After peaking at around 25 percent at the beginning of the year, a noticeable decline is projected, if the war does not exacerbate supply chain issues and food shortages. Therefore, the evolution of the consumer price index will be “reversed” compared to 2022. Prices could fall below 10 percent by the end of the third quarter and the beginning of the fourth quarter.

“It is possible that some of the energy- and raw material-intensive industries will be downsized and relocate from Europe. If the situation does not aggravate this winter and there is a chance of recovery in 2023, energy and raw material markets should see a slow decline in prices and a noticeable improvement in all areas. In the case of the raw material-intensice industries, it will be vital to replace them with more sustainable business in the long term,” said Perlusz, outlining possible scenarios.

“Economic growth around 1 percent seems most realistic for 2023, which of course includes a value close to zero,”

estimates the organisation.

This could be considerable in some areas, while the competitive and internationally highly productive business sector, which is typically based on foreign know-how and investment, may achieve significant growth next year.

In the need of favourable EU funding

To sustain economic growth and underpin the transition to a knowledge-based society, the country is in need of favourable EU funding. Perlusz emphasised the need to continue pushing for productive investments and investments that enhance competitiveness and productivity. Therefore, these funds can lay the foundations for further economic stabilisation and sustainability.

This should also include investment in human resources, i.e. support for education, training and health care, said Perlusz. Without investment in human resources, it is not possible to attract and establish serious foreign operating investments that plan to carry out research and development and market the finished product in Hungarian-based companies.

Photo: Facebook/Magyar Honvédség Egészségügyi Központ

International factors play important roles in these sectors as well. If we can only meet our energy needs through expensive foreign sources and destabilisation in the region increases, a further decline in the exchange rate and the forint’s weakening are unavoidable. Otherwise, we can expect a recovery, in parallel with a decline in inflation. This, in an optimal scenario, could mean a euro exchange rate below HUF 400 for a sustained period, said László Perlusz.