Hungary's economy proves resilient amid EU sanctions

The Hungarian stock market has outperformed expectations despite frozen funds and fines.

Hungary's economy proves resilient amid EU sanctions
AP Photo/Geert Vanden Wijngaert
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A report from the German financial newspaper FAZ highlights Hungary's remarkable economic resilience in the face of European Union sanctions, which have left over €15 billion in funds frozen for the country previously highly reliant on EU support. 

Despite the challenges posed by the "right-wing populist government" of Viktor Orbán and the withholding of significant subsidies from the EU, Hungary's stock market has continued to outperform and adapt, Remix reports.

Since the beginning of the Russia-Ukraine conflict, the leading index BUX has risen by 47 percent, significantly more than other stock market barometers in the region. 

The Budapest exchange features four flagship companies that dominate its market cap, including OTP, MOL, Richter, and Magyar Telekom. These companies have performed well, even as Hungary faces the potential loss of hundreds of millions in fines and frozen funds from the EU.

Fritz Mostböck, chief analyst at Erste Group, attributes Hungary's success to improvements in both the trade balance and the current account balance last year, which have helped the country reduce its direct dependence on EU funding. Additionally, Hungary has turned to the East, with countries like China investing in the country, further diversifying its economic relationships.

Despite the challenges faced in 2022, with soaring energy prices derailing the foreign trade balance, analysts believe that EU funds still play a critical role in Hungary's medium-term economic prospects and the green transition. Stephan Csaba Imre, an analyst at Raiffeisenbank International (RBI), suggests that a certain "EU bickering premium" is priced into Hungarian assets, with the expectation that Hungary will gradually receive EU funds, even if the process is lengthy.

Finance company Moody's assumes that Hungary will eventually receive the bulk of EU funds, limiting the impact of delayed funding on economic growth and public finances. However, Hungary's dependence on Russian gas is expected to remain high in the coming years due to its relatively close relations with Russia and its reliance on the TurkStream gas pipeline.

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