Hungary's economic decline under Orbán: How the former showcase model of Eastern Europe squandered its leading position

Brain drain and empty coffers: The fatal consequences of Orbán's "unorthodox" economic policy

For decades the poorhouse of Europe – now Romania is richer than Hungary

Hungary was once considered the undisputed economic star of Eastern Europe, a prime example of successful transformation. But 15 years after Viktor Orbán took office, a drastically different and worrying picture has emerged. The former growth nation is mired in a deep structural crisis and is stagnating. The most symbolic evidence of this decline: even long-standing economic problem children of the EU, such as Romania, have now surpassed Budapest in per capita prosperity. How could this unprecedented collapse have happened?

This comprehensive analysis sheds light on the true cost of Orbán's "unorthodox economic policies." It reveals how the systematic restructuring of institutions, massive state intervention in the market, and unprecedented cronyism have destroyed investor confidence. Frozen EU billions, a dubious bet on Chinese battery factories, and a dramatic brain drain that is depriving the country of masses of young talent expose the failure of a system that prioritizes maintaining power over sustainable growth. A cautionary look at an economy that has squandered its competitive edge—and at the lessons the rest of Europe must learn from it.

Once at the top – now overtaken by Romania: What Orbán's "unorthodox economic policy" really costs

From leader to straggler: The eroded top position

In 2010, when Viktor Orbán took over the Hungarian government for the second time, the country was viewed in a favorable light by Eastern Europe. Adjusted for purchasing power parity, Hungary generated the highest gross domestic product (GDP) per capita among the region's transition economies – only the Czech Republic, Slovenia, and Slovakia ranked higher. This was no small feat: after the end of communism, Hungary had undergone a comparatively orderly transformation, attracting foreign direct investment and building an export-oriented industry. Its accession to the European Union in 2004 further accelerated this process. Anyone looking at the economic map of Eastern Europe in the mid-2000s would have seen a Hungary that confidently outperformed its neighbors.

A decade and a half later, this picture is barely recognizable. Not only have the three Baltic states – Estonia, Latvia, and Lithuania – overtaken Hungary in purchasing power parity-adjusted per capita GDP, but Poland and Croatia have also surpassed it. Most symbolic of this development is one that hardly anyone would have thought possible just a few years ago: Since 2023, Romania, which for decades was considered the poorhouse of the European Union, has generated more purchasing power parity-adjusted per capita prosperity than Hungary. In 2023, Romania's GDP per capita in purchasing power standards was 78 percent of the EU average, while Hungary, at 76 percent, remained below it – and this gap has not narrowed since.

These figures are more than a statistical footnote. They describe a structural shift that has built up over more than a decade – and which is not a random product of economic fluctuations, but the direct result of political decisions.

The starting point in 2010: Crisis as legacy and opportunity

To understand what happened under Orbán, a sober look at the initial situation is worthwhile. Hungary entered 2010 with considerable economic burdens. The global financial crisis of 2008/09 had hit the country particularly hard, the budget deficit had ballooned dramatically, and Budapest had to accept a bailout loan from the EU and the International Monetary Fund (IMF). The economy had collapsed, and investor confidence had been shattered. Orbán, therefore, did not inherit a thriving country, but rather an economy in dire straits.

This starting point cannot be ignored when assessing the economic policy decisions of the following years. Some of Orbán's early measures were indeed driven by economic logic: The introduction of a flat tax of initially 16 percent, later 15 percent, on income was intended to incentivize performance and reduce the shadow economy. In the following years, the employment rate rose above the EU average, and unemployment fell from around 11 percent to below 4 percent. GDP grew at rates sometimes exceeding 4 percent between 2013 and 2018, and the IMF loans were repaid ahead of schedule. At first glance, the model appeared to be working.

But behind these aggregate figures lay structural decisions that would have fatal long-term consequences – and whose full impact only became apparent years later.

The “unorthodox economic policy”: Market liberalism with the fist of the state

Orbán himself has always described his approach as "unorthodox economic policy"—a phrase that simultaneously signals self-confidence and a departure from the classical neoliberal consensus. In fact, this policy model is a hybrid construct: on the one hand, there are market-liberal elements such as the flat tax, and on the other hand, massive state intervention in the economy.

One of the defining characteristics of this policy was the systematic renationalization of strategic economic sectors. In the energy sector, banking, and retail trade, the Hungarian state acquired majority stakes or actively promoted private owners with close ties to the government. At the same time, foreign companies were burdened with special levies and retroactive tax increases. Foreign-owned banks, telecommunications companies, and trading firms faced a tax policy explicitly designed to skim their profits and favor domestic, politically loyal actors. From an economic perspective, this led to a distortion of competition and an erosion of the institutional frameworks that are fundamental to investment decisions.

Nationalization served a dual purpose: On the one hand, the state attempted to generate fiscal revenue through monopolies; on the other hand, the nationalized or renationalized companies served as an instrument of patronage – a source of lucrative contracts and well-paid positions for politically loyal actors. This blending of economic control and political power consolidation is the defining characteristic of the Hungarian model, distinguishing it from other interventionist economic policies.

EU funds as structural doping – and their suspension as a turning point

A key, often underestimated factor in Hungary's economic performance between 2010 and 2020 was the massive influx of European funding. Hungary was among the largest net recipients of EU cohesion funds – funds earmarked for infrastructure development, business modernization, and public sector capacity building. For years, these transfers represented a significant portion of investment activity in the country and compensated for structural weaknesses in private sector investment.

The problem: A significant portion of these funds did not flow efficiently into measures that increased productivity, but instead disappeared into a dense network of cronyism and political patronage. EU anti-corruption authorities found that between 2015 and 2019, Hungary had the highest rate of irregularities in the use of EU funds of any member state. EU parliamentarians who visited Budapest reported systematic pressure on foreign companies to sell shares to oligarchs with close ties to the government. Transparency International ranked Hungary as the most corrupt country in the entire European Union.

The turning point came when the European Commission began freezing EU cohesion funds at the end of 2022. A total of around €18 billion is currently at risk – roughly €8.4 billion in cohesion funds and €9.5 billion from the COVID-19 recovery program. At the end of 2024, €1 billion was irrevocably lost because Hungary had failed to implement the required rule-of-law reforms. According to recent EU reports, around €18 billion remains blocked at the end of 2025 because Hungary has made no progress on seven out of eight reform recommendations. To close the resulting funding gaps, the Hungarian government even resorted to loans of €1 billion from Chinese state-owned banks in 2024 – under undisclosed conditions.

The elimination of these structural transfer payments revealed what the EU billions had concealed for years: an economy with significant productivity weaknesses and an investment-hostile institutional environment.

Stagnation instead of convergence: The economic figures speak for themselves

Since 2021, Hungary's economy has barely recovered in real terms. In 2023, GDP shrank by 0.8 to 0.9 percent. Growth in 2024 was minimal at 0.5 to 0.6 percent. For the entire year of 2025, Hungary's National Statistics Institute (KSH) reported growth of just 0.3 percent – ​​placing the country third from last among the 17 EU member states that had reported figures up to that point, only slightly ahead of crisis-stricken Finland. The government's original forecast for 2025 had projected 3.4 percent – ​​a target that was missed by a factor of ten.

Behind these aggregate figures lies an even more dramatic sectoral structure: In 2024, industrial production shrank by 4 percent, the manufacturing sector by 4.4 percent, and agriculture by more than 10 percent as a result of a severe drought. Growth was driven solely by a 5 percent increase in private consumption – financed by high nominal wage increases, but not by productivity gains. Investments collapsed by a dramatic 11.3 percent in 2024 – a clear indication that both domestic and foreign companies have lost confidence in the location.

The budget deficit stood at 6.7 percent of GDP in 2023 and at 5.4 percent in 2024 – well above the EU stability criteria. Public debt stabilized at around 73 to 74 percent of GDP. Inflation reached the highest level of all EU member states in 2023, averaging 17 percent annually – a direct result of the abrupt lifting of price ceilings at the end of 2022. The Hungarian forint lost significant value during this period and was at times among the most depreciated currencies in the region. All these indicators combined describe not a temporary economic downturn, but a systemic crisis.

Our EU and German expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus areas: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More information here:

• Expert Business Hub

A thematic hub offering insights and expertise:

• Knowledge platform covering global and regional economies, innovation and industry-specific trends
• A collection of analyses, insights, and background information from our key areas of focus
• A place for expertise and information on current developments in business and technology
• A hub for companies seeking information on markets, digitalization, and industry innovations

The catch-up model of the laggards: Why others are growing faster

The contrast between Hungary's stagnation and the dynamic growth of neighboring transition countries is revealing from an economic perspective. It demonstrates that institutional and political frameworks are crucial in determining whether a country can fully exploit the growth potential of a catch-up process.

Poland is the most impressive example. With economic growth of 2.9 percent in 2024 and a stable growth rate averaging around 4 percent since 1991, Poland is now the sixth-largest economy in the EU. Labor productivity has increased by 40 percent since 2010 – compared to just 11 percent in Germany over the same period. According to IMF forecasts, Poland will surpass countries like Japan, Spain, and New Zealand in per capita GDP at purchasing power parity by 2030. The key to Poland's success lies in a stable institutional framework, a reliable legal system, a high level of education, and the efficient use of European funding for productivity-enhancing investments. Furthermore, its consistent integration into global value chains has established itself as a sought-after industrial location that attracts foreign direct investment rather than driving it away.

The Baltic states demonstrate a different, but equally instructive, growth strategy. Since joining the EU in 2004, Estonia, Latvia, and Lithuania have increased their real economic output by 50 to 70 percent – ​​compared to an EU average of just 27 percent. The secret to this success story lies not primarily in raw materials or favorable geographical conditions, but in a consistent choice: The Baltic countries opted early on for open institutions, digital administration, and a lean, efficient state. Estonia is now considered a global leader in e-governance – 99 percent of all administrative processes can be handled digitally, generating two percent of the country's GDP in efficiency gains annually. Relative to its population size, Estonia has produced the most unicorns worldwide – startups valued at over one billion euros – including names like Skype, Bolt, and TransferWise.

Romania's catch-up process is in some ways even more surprising because the country was considered a problematic outlier well into the 2000s. However, its accession to the EU in 2007 – three years after Poland and the Baltic states – unleashed reform forces that put the country on a steeper growth trajectory. Romania's GDP in purchasing power standards rose by four percentage points relative to the EU average between 2021 and 2023 alone – one of the strongest increases in all of Europe. Adjusted for purchasing power, Romania's per capita GDP in 2024 was around US$40,608 – just slightly below Hungary's US$40,702. Given continued growth forecasts for Romania, this difference is likely to reverse soon.

The demographic alarm signal: When human capital leaves the country

Among the most serious, yet insufficiently discussed in public debate, structural consequences of the Orbán era is the ongoing brain drain. According to official figures from the Hungarian Statistical Office, approximately 367,000 Hungarians permanently left the country in the 15 years between 2010 and 2025. The actual number is likely considerably higher, as foreign statistics often register almost twice as many arrivals from Hungary as the Hungarian side reports as departures. It is estimated that around 546,000 Hungarians were living in other EU countries, the United Kingdom, Switzerland, and Norway in 2024.

What is worrying is not only the quantity of emigration, but also its nature: the emigrants are disproportionately young and well-educated. In 2024, 41,300 Hungarians left the country – the highest number ever recorded in a single year since detailed records began in 2010. The Hungarian Parliament itself published reports that, instead of offering solution-oriented reform proposals, focused on the educational level of women and their alleged reluctance to start families – a reaction to the emigration crisis that completely missed its root causes. Economic experts, however, agree: as long as the brain drain continues, Hungary will never be able to structurally catch up with the wealthier Western European economies. An economy that systematically exports its human capital undermines the foundation for any long-term productivity growth.

The battery strategy: Orbán's bet on Chinese investments

Amid this weak growth, the Hungarian government is attempting to counteract it with an industrial policy offensive aimed at making the country the "battery superpower" of Europe. Indeed, Hungary has received spectacular investment commitments in recent years: The Chinese battery manufacturer CATL is investing around €7.3 billion in Debrecen – the largest foreign direct investment in Hungarian history. Samsung SDI in God and BYD have also established or announced production facilities in Hungary. German brands such as Audi, BMW, and Mercedes have been producing in the country for decades.

This investment strategy, however, carries significant risks and contradictions. First, Hungary has become extremely dependent on electromobility – a sector whose global growth dynamics are heavily influenced by political subsidy decisions, trade disputes, and demand trends in its most important export market, China. Second, environmental incidents, particularly at the Samsung plant in Göd, where carcinogenic substances are alleged to have been released into the environment over an extended period, have significantly increased public resistance. Third, battery production is a capital-intensive industry with relatively few jobs, and it generates very little technology transfer to local small and medium-sized enterprises (SMEs). The politically mandated special economic zones, with which Orbán's government has undermined the democratic participation rights of the affected municipalities, are seen as a symbol of an authoritarian economic policy that buys investment through institutional circumvention.

Institutional erosion as the root cause of growth failure

The economic record of the Orbán era cannot be reduced to isolated missteps. It is the result of a systematic erosion of the institutional foundations upon which sustainable economic growth is built. Independent courts, a free press, a functioning civil society, and a non-political tax administration are not democratic luxuries, but rather essential economic factors of production.

When companies cannot trust that contracts will be enforced impartially—that they won't be penalized tomorrow with a special levy or forced to relinquish company shares—they invest less. This explains the dramatic 11.3 percent decline in business investment in 2024 and the ongoing uncertainty, particularly among small and medium-sized enterprises (SMEs). ING Bank, which recently lowered its growth forecast for Hungary to 1.9 percent for 2026, notes that the country has been stuck in a "growth-free zone" since 2021. The pattern of recent years—a stronger quarter followed by a weaker one and vice versa, without a sustained upward trend—is a sign of an economy lacking a structural growth engine.

Added to this is Hungary's dependence on the German economy. Because Hungary is economically closely intertwined with Germany – through automotive supply chains and other industrial exports – the German recession of 2023 and 2024 directly impacted Hungarian industry. Industrial production fell by 4 percent in 2024, and the manufacturing sector even by 4.4 percent – ​​largely a consequence of weak German demand. This dependence is not unusual in itself for a small, open economy. The problem, rather, is that Hungary has hardly developed any alternative sources of growth that could cushion such external shocks.

The political economy of Orbanism: Maintaining power as a brake on growth

A sober look at the political economy of Hungary under Orbán leads to an uncomfortable but evidence-based conclusion: Many of the most economically damaging decisions of the last 15 years can be rationally understood as instruments of power consolidation, even if they are counterproductive to the overall economy.

The redistribution of EU funds through a network of government-affiliated companies and oligarchs created a broad base of material loyalty for the ruling Fidesz party. The nationalization or renationalization of key companies tied economic elites to political power. Media control suppressed critical economic policy analyses in public discourse. And special levies on foreign companies provided short-term fiscal revenue, which financed social welfare payments and minimum wage increases—measures that satisfied broad segments of the population without addressing the structural problems of the economy.

This pattern is not specific to Hungary; it can be found in various forms wherever governments fail to make a credible institutional commitment to the rule of law. The specifically tragic aspect of the Hungarian situation is the missed historical opportunity: Given its starting point in 2010—access to EU structural funds, a skilled population, and an already established industrial base—Hungary could have significantly closed the gap with Western European economies in the following decade and a half. Instead, the country not only failed to expand its relative lead in prosperity within the region but actually lost it.

Outlook: Structural change or continued stagnation?

The Hungarian economy will be at a crossroads in 2026. With the parliamentary elections in April 2026, a political upheaval is at least possible: Orbán's Fidesz party is trailing the opposition TISZA party under Péter Magyar in the polls, who has made economic mismanagement, corruption, and cronyism a central campaign issue. Should a change of power occur, the economic policy consequences would be significant – in both directions: In the short term, the release of frozen EU funds and an improvement in the institutional environment could revive investment. In the medium and long term, however, a profound restructuring of institutions, the judiciary, and the media would be necessary, as these can only slowly build trust and cannot quickly repair structural damage.

Even under an optimistic scenario, the demographic damage caused by the ongoing brain drain remains difficult to reverse. People who have emigrated rarely return quickly – and those who have left have established careers and social networks in Western Europe. Public debt of around 73 to 74 percent of GDP limits fiscal policy options. Dependence on Chinese battery investments creates new strategic vulnerabilities, especially in a geopolitical environment where the EU is increasingly critical of its economic ties with Beijing.

Romania's per capita GDP at purchasing power parity is likely to permanently surpass Hungary's in the future if current growth trends continue. Global macroeconomic models forecast Romania's per capita GDP (PPP) to reach approximately US$41,814 by 2025, while Hungary's is expected to reach only US$40,489. This gap is still small, but the growth dynamics are clearly moving in opposite directions: Romania is accelerating, while Hungary is stagnating.

The structural failure of a model

What the figures reflect is the result of an economic policy that, by its very nature, is caught between short-term power politics and long-term growth requirements. Hungary was well-positioned in 2010. It had a comparatively solid industrial base, access to EU funding, and a well-educated population. None of these foundations were consistently used for a sustainable growth strategy.

The contrast with Poland – which, with largely similar starting conditions and without the resources of a previous catch-up advantage, wrote a remarkable success story – is the most illuminating. Poland grew because it strengthened institutions, attracted investors, promoted education, and used EU funds efficiently. Hungary lost ground because it weakened institutions, unsettled investors, drove away talent, and misappropriated EU funds for patronage networks.

Romania's overtaking of the competition is therefore more than a statistical curiosity. It is the most visible symbol of the failure of Orbán's economic model – and at the same time a cautionary signal that institutional quality, the rule of law, and political predictability are not abstract categories of democratic theory, but tangible economic competitive factors, the absence of which sooner or later results in lagging growth and declining prosperity.

☑️ Our business language is English or German

☑️ NEW: Correspondence in your native language!

Konrad Wolfenstein

I and my team are happy to be available to you as your personal advisor.

You can contact me by filling out the contact form here or simply call me at +49 7348 4088 965. My email address is : [email protected]

I'm looking forward to our joint project.

☑️ SME support in strategy, consulting, planning and implementation

☑️ Creation or realignment of the digital strategy and digitization

☑️ Expansion and optimization of international sales processes

☑️ Global & Digital B2B trading platforms

☑️ Pioneer Business Development / Marketing / PR / Trade Fairs

The quasi-in-house solution: How Xpert.Digital closes operational gaps in B2B marketing and sales – Smart Content-Driven Business - Image: Xpert.Digital

Xpert.Digital is a data-driven B2B industry hub led by Konrad Wolfenstein . The company acts as an external, quasi-in-house solution for industrial partners, closing operational gaps in marketing, content, and sales – without requiring additional resources on the client side.

More information here:

• The quasi-in-house solution: How Xpert.Digital closes operational gaps in B2B marketing and sales – Smart Content-Driven Business