BUDAPEST (Reuters) – Price caps to curb surging inflation and windfall taxes imposed by Hungary’s government have hurt sentiment among German firms in the country, a business survey showed on Wednesday.
Germany is Hungary’s biggest foreign investor, giving the survey by the German-Hungarian Chamber of Industry and Trade extra resonance.
It showed the assessment of the economic policy framework, labour market and infrastructure had deteriorated, with Hungary’s relative position also edging lower within the region.
Overall, German firms in Hungary assessed their business prospects as the worst in a decade, although their investment and employment plans improved slightly from a year earlier, when Russia launched its invasion on neighbouring Ukraine.
Hungarian think tank GKI’s own business sentiment index fell to its lowest level since the start of the year in April, dragged down by weaker prospects in industry, trade and services.
In power since 2010, nationalist Prime Minister Viktor Orban launched caps on the prices of fuels, basic foods and mortgage rates last year to rein in inflation, which still shot past 25% year-on-year, by far the highest in central Europe.
He also imposed windfall taxes on banks’ and large private companies’ “extra profits” to rein in a swelling budget deficit, turning again to a policy that has helped the 59-year-old avoid raising taxes for families.
“The economic policy measures taken since the start of 2022 have contributed to a decline in satisfaction,” the survey said.
“These have either imposed higher burdens on companies (such as ‘extra profit taxes’, or represented a direct intervention into market mechanisms (such as administrative price controls).”
German companies were also concerned about the delays in Hungary’s access to European Union funding amid a row over democratic standards, which was hampering the launch of planned investments, the survey said.
It said German companies expected wages to rise by some 14% this year on average, largely in line with last year’s levels. Even so, Hungary would still run the third-lowest employment cost in the EU according to the survey.
(Reporting by Gergely Szakacs; Editing by Alison Williams)
