Media commentary on Hungary is understandably focused on the recent election between Prime Minister Viktor Orbán and his colleague-turned-rival, Peter Magyar, head of the TISZA (Respect and Freedom) party. On April 12, Fidesz’s Orbán lost power to Tisza’s Magyar after 16 years in office.
Less attention is being paid to the fundamentals of this key Central European country, which, with its well-educated population, well-developed infrastructure, and broadly diversified economy, lies at the heart of EU supply chains.
After a bumpy few years following the Covid-19 pandemic, which saw GDP growth stagnate between 2023 and 2025, the economic outlook is improving. Fitch Ratings forecasts GDP growth at 2.3% this year, rising to 2.6% in 2027, fuelled by expanding government spending, domestic demand, and large investments in auto and battery production capacity and exports. Inflation is set to fall from 2025’s 4.5% to 3.5% this year, the main concern being fiscal slippage. That prompted Fitch to change its Sovereign Outlook to negative in December; the rating agency estimates the deficit widened to 5% last year, with a further widening to 5.6% projected for 2026.
“A combination of pre-election fiscal easing, tax incentives, and social support measures, all on the back of an uncertain growth outlook and high global uncertainty, suggests that anchoring fiscal expectations will be key for whichever government emerges after April,” says Malgorzata Krzywicka, director at Fitch. Hungary’s public debt is around 75% of GDP, the highest in the region, she warns.
This picture suggests why the government has put so much focus on foreign direct investment (FDI). Hungary received over €7 billion ($8.1 billion) in investments and commitments last year, much of it directed at the automotive, battery, and electronics industries. Some 108 new projects were launched in these and other sectors, including information and communication technology and the chemical industry.
The US has been very active, its FDI commitments benefiting from the close relationship between the governments in Budapest and Washington, DC. Some 17 new projects have been announced since President Donald Trump’s inauguration, in manufacturing, AI, and other sectors. China is also a leading investor, responsible for over half of Hungary’s FDI over the past two years, with EV battery producer CATL’s €7.34 billion commitment to a new plant that will make Hungary the world’s fourth-largest producer of EV batteries.
European countries, led by Germany, which have formed the backbone of Hungary’s FDI over the past 10 years, have also been active. Last year, Mercedes-Benz announced an expansion of its €1 billion, state-of-the-art electric vehicle manufacturing plant in Kecskemét, with the capacity to eventually produce 350,000 vehicles a year.
The project includes a new research and development center slated to employ an additional 3,000 people and focusing on prototype testing and hardware and software development for EVs.
BMW, meanwhile, has announced plans to invest some €2 billion in a new EV plant. And from the Czech Republic, arms manufacturer CSG has announced plans to purchase 49% of Hungary’s 4iG Space & Defence Technologies, part of the Rába Group which makes heavy vehicles including Tatra trucks. The deal gives CSG an effective 37% stake in Rába, with the deal paving the way for production of 2,000 Tatra trucks for the Hungarian army. Production for export of trucks to Southeast Asia could be worth up to €1billion.
Analysts say the deal marks a major reconfiguration of Central Europe’s defense industry, turning Rába’s base in Györ in eastern Hungary into one of its key hubs.
Governance Concerns
Fitch’s Krzywicka expects 2026-27 to see FDI inflows stabilize at around 2% of GDP, led by investments in automotives and EV batteries.
But she has concerns over judicial independence, the rule of law, governance, and the public procurement process, which Transparency International says have impacted growth and the disbursement of EU funds as well as FDI inflows.
“This can be a tricky environment for investors to navigate,” says Marcin Tomaszewski, a lead economist for the EU region at the European Bank for Reconstruction and Development (EBRD), “despite all the tax and other inducements on offer.”
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