German gloom highlights risks around Hungary’s recovery -survey

BUDAPEST (Reuters) – German companies in Hungary have turned more pessimistic about their business prospects than at any point since the 2009 financial crisis, a survey by Hungary’s largest foreign investor group showed on Wednesday, highlighting risks to next year’s recovery.

Hungary eked out its first quarterly growth in a year in the third quarter, data showed on Tuesday, as central Europe’s economies scrabble out of an inflation-induced downturn amid the war in neighbouring Ukraine.

Even so, the economy contracted by an annual 1.2% in the first nine months, weighed down by the European Union’s highest inflation and central bank interest rate hikes, which have crippled demand and put strain on the Hungarian budget.

The survey by the German-Hungarian Chamber of Industry and Commerce showed 34% of 209 firms surveyed in October expected their business prospects to deteriorate, dragging the balance of responses into the negative range for the first time in 13 years.

The gloom, driven in part by weakness of the German economy, is leading companies to curb hiring and investment plans, with the share of companies planning to cut investment spending exceeding those planning rises for the first time in a decade.

While the economic outlook was generally weak across central Europe, which sends a large part of its exports to Germany, investment and employment plans in Hungary were weaker than elsewhere in the region, the survey showed.

It said a third of German companies in Hungary planned to postpone planned investments due to high inflation, while one in five businesses planned to scrap investments altogether.

The survey said companies expected a 10.4% rise in wage costs over the next 12 months, down from 14.5% seen in the spring but still putting pressure on profitability amid steep cost rises elsewhere.