Hungary's mechanical engineering between slowdown and reform

“In Hungary, after the victory of the Tisza Party in the election on April 12, there is a mood of new beginnings and optimism in many places,” reports Barbara Zollmann, managing director of the German-Hungarian Chamber of Industry and Commerce (DUIHK). “A business climate survey by AHK Hungary, which was conducted shortly before the election and then again repeated immediately after the election among chamber member companies, also shows a clear shift in sentiment,” the chamber chief further emphasizes.

“Thus, willingness to invest and general business expectations have in some cases improved significantly. Many goals of the new government are welcomed by the business community, for example fair and transparent competitive conditions, the safeguarding of the rule of law and considerations regarding euro adoption,” Zollmann continues. Economic actors are more cautious about other planned measures, for example the restriction of the employment of third-country nationals or the strengthening of workers’ rights and trade unions.

EU releases funds, but demands reforms

In order to receive the previously blocked EU funds in the total amount of 16.4 billion euros, the new Hungarian prime minister Péter Magyar must quickly implement various reforms. This is because Brussels had imposed conditions on Budapest in so-called 27 “super milestones” that primarily concern the four areas of combating corruption, public procurement, judicial reforms as well as the protection of the financial interests of the EU.

In addition, the new government of the Tisza Party must above all hurry when it comes to drawing the funds from the EU recovery fund (“Next Generation EU”). Of the originally planned 10.4 billion euros, 6.5 billion euros were released as grants and 3.5 billion euros as loans. Brussels ties the disbursement to reforms to combat corruption and to strengthen the rule of law. In addition, the funded projects must be implemented. The deadline for both expires at the end of August.

However, the new government, which has a two-thirds majority in the Hungarian parliament, has already achieved “great progress” on the required reforms during its short time in office - as Commission President von der Leyen emphasized at the end of May. And Magyar himself spoke after the meeting with von der Leyen in Brussels of a “historic breakthrough.” The EU funds are also urgently needed for reviving the Hungarian economy, because the previous government under Viktor Orbán left Péter Magyar - as experts emphasize - a stagnating economy and a high budget deficit.

Hungary's economy urgently needs stimulus

“The Hungarian economy largely stagnated in the past three years,” states Kirsten Grieß, correspondent for Hungary, Croatia and Slovenia at Germany Trade & Invest. “This has both external and internal causes. Hungary's extensive industrial model with its strong focus on the automotive industry came under pressure in view of weak demand in important export markets - above all Germany. Industrial production has been declining since 2023, and gross fixed capital formation has also been falling since 2022. According to the EU spring forecast from May 2026, the decline in gross fixed capital formation in Hungary last year, at a real minus 2.8 percent, was however less severe than had still been expected in the fall. In addition: The state has hardly invested at all since 2023,” the GTAI expert continues. “Because of blocked EU funds amounting to billions, nearly all public investment projects were stopped or postponed. The construction industry in particular is suffering from this. Agriculture is also under pressure: it is struggling with low productivity and considerable crop failures as a result of several years of drought. Most recently, it was above all private and government consumption that developed positively. Despite good figures in the 1st quarter of 2026, the official forecast of real GDP growth of over 3 percent is hardly likely to be maintained. The Hungarian central bank lowered its growth expectation in March to 1.7 percent. The EU Commission expects an increase of 1.8 percent for 2026 and for 2027 of 2.1 percent. Consumption is likely to remain an important growth driver for the time being. At the same time, industrial production could stabilize, because new capacities are coming on stream particularly in the automotive industry - for example at BMW, Mercedes-Benz and BYD - as well as in battery production, including at CATL, ” Kirsten Grieß further reports.

From the release of blocked EU funding and the resulting government investments, according to GTAI, the construction sector in particular would benefit, and indirectly also machinery and plant manufacturers. Visible effects, however, are likely to occur only with a delay. For this year, analysts do not yet expect a noticeable recovery in investment. This is consistent with the forecasts of the European Commission. According to these, gross fixed capital investment could rise slightly again by 1.3 percent in 2026 and by 3.9 percent in 2027. A significant risk for this outlook remains the situation in the Middle East. Disruptions to global supply chains and persistently high cost pressure could once again slow investments.

Automotive industry dominates Hungary's corporate landscape

Mechanical engineering companies in Hungary are traditionally strong in the areas of agricultural machinery, machinery for the manufacturing sector, as well as for the automotive industry, emphasizes the German-Hungarian Chamber of Industry and Commerce (DUIHK). According to analyses by GTAI, the automotive industry is by far the most important branch of Hungary's manufacturing sector. Behind it follows - alongside the chemical industry and at a considerable distance - mechanical engineering. For comparison: in 2024, 6.7 percent of the gross value added of the manufacturing sector was attributable to mechanical engineering, whereas the automotive industry accounted for 17.0 percent. Overall, the manufacturing sector accounted for a share of 18.5 percent of total gross value added in 2024.

“The situation in Hungarian mechanical engineering remains tense. The production performance of the sector has been declining significantly for several years. In 2025, production in value terms fell by 5.0 percent compared with the previous year. A central burden factor is the strong export orientation: A large part of the machines and machine parts manufactured in Hungary goes abroad. Accordingly, the industrial weakness in Germany, the most important export market for Hungarian mechanical engineering companies, hits the sector particularly hard,” analyzes Kirsten Grieß of GTAI. 

According to data from the National Statistical Office KSH, Hungarian mechanical engineering achieved export revenues of 6,025 million euro in 2025. In demand abroad were above all Hungarian engines and turbines, pumps and compressors, hand-held tools with motor drive as well as refrigeration and air-technology products, GTAI reports. “In the ranking of the world mechanical engineering industry, Hungary is in 32nd place,” adds Yvonne Heidler, consultant for Western Europe/EU, South and Central America at VDMA. “In the export statistics of German mechanical engineering, Hungary ranked 16th in 2025 with German exports of just under 3.6 billion euro; in the import statistics with German machine imports from Hungary of almost 10.0 billion euro, it was even in 11th place,” the VDMA expert further reports.

“For German machinery deliveries, it was - given the strong automotive sector in Hungary, not surprisingly - the drive technology sector with a 13.7 percent share that was particularly in demand. This was followed by German exports of general air technology (7.7 percent), agricultural technology (6.9 percent), valves (6.9 percent) and power systems (6.1 percent).” According to VDMA data, Germany remains by far Hungary's most important machinery supplier (29.8 percent), followed at a great distance by China (15.3 percent). “But the Chinese competitors are very active in the market and have made up significant ground in the last year,” said Yvonne Heidler.

Many German machinery manufacturers on site

DUIHK President Dr. Róbert Keszte also pointed to the close economic interconnection between Germany and Hungary during the presentation of the two above-mentioned chamber surveys. “Around a quarter of Hungarian exports go to Germany, and at the same time German companies in Hungary employ more than 230,000 employees and generate more than 12 percent of the country's total value added,” Chamber President Keszte continued. “With more than 900 member companies, the DUIHK, founded in 1993, is the country's largest bilateral business association.”

“There are also traditionally close ties with Hungary in German mechanical and plant engineering. The country has successfully established itself as an export market, investment location, and sourcing location (extended workbench),” adds Yvonne Heidler of the VDMA. “Hungary is an important procurement market, especially for parts and components. Particularly since Hungary joined the EU in 2004, a great deal has been invested thanks to EU funds. Deliveries of machinery and equipment also benefited from this. Many of our member companies from a wide range of sectors have been present on the Hungarian market for decades with their own subsidiaries,” reports the VDMA expert. “At its Törökszentmiklós site, Claas manufactures and develops agricultural and special-purpose machinery as well as components for the German Claas main plant,” adds Barbara Zollmann, head of the DUIHK. “Trumpf, the leading provider of machine tools and laser processing technology, operates its sales and service center for all of Southeastern Europe in Hungary at its Gödöllő site. The Körber Group, a globally leading company in the field of individual machine manufacturing, formerly mainly as a producer of tobacco machines and now also active as a manufacturer of medical devices, is expanding the plant of Körber Hungária Kft. in Pécs with investments of 14.5 bn forints (40.8 million euros),

A well-functioning network of specialized medium-sized supplier companies has become established around the large, mainly foreign companies in mechanical engineering. One example to mention here is ACPS Automotive Kft., which as a leading TIER1 supplier manufactures and develops trailer couplings and other components for the automotive industry from its plant in Kecskemét, Hungary," Barbara Zollmann continues.

"Examples of particularly successful German mechanical engineering companies have recently been found above all in Debrecen in eastern Hungary," says Kirsten Grieß of GTAI. "There, Krones and Harro Höfliger, two German mechanical engineering companies, have successfully positioned themselves that are less strongly focused on the automotive industry. The manufacturer of filling and packaging systems Krones has operated a plant in Debrecen since 2019 and employs more than 760 staff there. Harro Höfliger maintains its largest foreign plant in Debrecen; the packaging specialist for medical and pharmaceutical products achieved record sales there in 2024 and is building a new production hall for about 15 million euros."

State support programs in the future mostly for SMEs

In Hungary, according to the German-Hungarian Chamber of Industry and Commerce, there have for many years been a number of state support programs for companies. These are announced and coordinated by the state agency Hungarian Investment Promotion Agency (HIPA). In recent years, the focus of support has shifted from pure production toward projects with a higher degree of value creation such as, for example, R&D, development centers, etc.

The new Hungarian government has declared it as its goal to align its funding policy more strongly with a view to the SME sector as well as research- and innovation-oriented project plans with a potentially higher degree of value creation, the DUIHK continued. “The funding programs for SMEs set up under the previous government could also be used for the purchase of machines and equipment. However, the direct effect on mechanical engineering is likely to have been limited, since the individual funding volumes were usually manageable. That could possibly change now,” Kirsten Grieß adds.

“So far, Hungary has promoted large industrial settlements much more strongly. Since his return to office in 2010, Viktor Orbán has relied on an extensive, settlement-driven industrial policy,” the GTAI expert continues. “High-volume industrial investments were generously subsidized under his government by individual government decision. In individual cases, the subsidies reached dimensions of around 30 to 50% of the total investment sum. Mechanical engineering companies could also benefit indirectly from this - both from Hungary and from Germany, for example as equipment suppliers for BMW’s major investment in a new plant or for Mercedes-Benz’s plant expansions. The new government under Péter Magyar, on the other hand, wants to critically review the Orbán government’s settlement policy. It is therefore to be expected that state funding practice will change in the future. A stronger focus on productivity-increasing investments has already been announced.”

Tips for newcomers

“Anyone wishing to get involved in Hungary for the first time can expect a good general level of education on site, a well-developed infrastructure, and labor costs that are favorable by EU comparison,” summarizes Barbara Zollmann. “Criteria for business success are above all one’s own adaptation to the regional and customary national conditions, the promotion of training, which German companies mostly take into their own hands and organize in a practical manner, and the increase of productivity and efficiency through automation and the use of AI.”

“What causes concern for many of our member companies,” Zollmann continues, “is that in Hungary there is virtually full employment, that at the same time the new government is currently restricting the taking up of work for employees from non-EU countries, and that providers from the Far East often appear on the Hungarian market under unequal competitive conditions.” From her experience, Yvonne Heidler adds: “Especially in the metropolitan areas, German mechanical engineering companies are also considerably burdened by the wage cost increases associated with the shortage of skilled workers.”