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.