Hungary Risks Losing Investment on Labor Scarcity, Chamber Says

Hungary’s economy is at risk of losing investment as dissatisfaction over available labor more than doubled in the last five years, according to an annual survey of executives by the German-Hungarian Chamber of Commerce.

Fifty-four percent of respondents were unsatisfied with labor availability in 2016, up from 26 percent in 2010, according to the report published on the chamber’s website on Wednesday. It cited difficulty in hiring workers for companies and wage pressures, both of which lead to a loss of competitiveness.

“If the trend is sustained, investment plans will be negatively affected since the lack of skilled labor impairs return on investments,” the report said.

The scenario is playing out across the region stretching from the Baltics to the Balkans, where cheap labor and untapped markets lured tens of billions of euros in investment after the fall of the Iron Curtain. That fueled booming growth and lifted living standards, especially since the European Union’s big-bang expansion into the region in 2004. Now, plunging demographics, falling unemployment and the exodus of millions of workers looking for higher earnings are exposing the limits of the low-cost growth model.

The biggest labor shortage in Hungary is in the manufacturing industry, where two-thirds of executives said they were unsatisfied, the report said. Car production accounts for the biggest share of industrial output. Automakers in Hungary include Daimler AG’s Mercedes, Suzuki Motor Corp. and Volkswagen AG’s Audi.

Companies spend an average of 7.8 euros ($8.85) for an hour of work in Hungary, compared with 31.8 euros in Germany and the European Union average of 24 euros, the report said, citing 2014 data. Executives were less enthusiastic about the introduction of the euro in Hungary, with 52 percent favoring adoption of the common currency compared with 56 percent last year.

The report was based on a survey of 226 company executives in Hungary in February, part of an annual central and eastern European survey in which 1,623 executives took part. Hungary was ranked the ninth best place to invest out of 20 countries in central and eastern Europe. The Czech Republic was first, followed by Poland and Slovakia.

Before it's here, it's on the Bloomberg Terminal.