In our previous analysis, we have dealt in detail with the development of Hungarian-Polish relations from both diplomatic and economic perspectives. However, the political and geostrategic challenges of recent years have changed much about the relationship between the two countries and the rhetoric surrounding it. While the political divergence has left its mark on the foreign policy relationship, it has so far not been reflected in the trade between the two countries, with Hungarian exports to Poland growing by 9.5% in 2023 compared to the previous year. In addition, there is a continuous flow of capital between the two countries, with the largest Polish logistics company deciding to enter the Hungarian market in May 2024. In our short summary, we will look at the Hungarian-Polish relationship from the perspective of economic relations, taking into account the contrasting communication from 2020 onwards.
Poland is the sixth largest economy in the European Union and one of Hungary’s top ten trading partners. The two countries have a long history of close relations, and their geographical proximity and membership of the Visegrád Cooperation are further common links between Poles and Hungarians. Despite this, the relationship between the two countries has changed significantly, especially after 2022, following the outbreak of the Russian-Ukrainian war. While Poland has been a strong critic of Russia, mainly for geopolitical and historical reasons, Hungary has used more cautious language in its comments. In the course of its assistance to Ukraine, Poland has on several occasions handed over weapons and military equipment to Ukrainian soldiers, despite the fact that it has thus exposed both itself and its NATO allies to potential danger. For Hungary, assistance to Ukraine has materialised on a humanitarian level and in promoting peace between the two warring parties as soon as possible. This opposing behaviour between Poland and Hungary has then steadily deepened over the past almost three years, and is further complicated by the fact that the current Polish government does not consider it important to actually improve bilateral relations, despite the facts already mentioned.
Improving the bilateral relationship would be important for several reasons: first, there has been no precedent for such a drift in the relationship between the two countries in the last roughly thirty years. Second, both countries are members of the V4, which is currently beset by political and diplomatic divisions. At the same time, the intensity of Polish-Hungarian trade relations also makes it important to settle external relations, as it is in the interest of both countries to remain partners.
Diplomatic disputes typically only show up in foreign trade data when the dispute is long-standing and is accompanied by some administrative regulation that has previously not been in place between the parties. For example, although Ukraine’s relationship with Hungary has been fraught with disputes since 2012 over restrictions on the use of minority languages, this is not reflected in trade data. While there has been a noticeable drop in imports to us due to the war, if we look at the years before, we see that the foreign policy conflicts had not affected bilateral trade.
Trade in goods data show that there is a Polish surplus in trade between the two countries. The value of Polish imports into Hungary is consistently higher than the value of Hungarian exports, which is why the bilateral trade balance is negative. The economic downturn caused by the coronavirus pandemic in 2020 is obviously reflected in the value of foreign trade, after which there was a steady increase in both imports and exports until 2022. In 2023, Polish imports into Hungary fell by 5.8% compared to the previous year, while Hungarian exports increased by 9.5% compared to 2022. Behind the decline in imports is a contraction in domestic consumption. Poland exports vehicles, parts and transport equipment, electronic equipment, metal products and furniture to Hungary. On the Hungarian export side, pharmaceuticals and medical products, vehicles and transport equipment, electronic equipment, and plastic and chemical products are the most important. The economic downturn in 2022-2023, aggravated by the crisis caused by the Russian-Ukrainian war in addition to the spill-over effects of the coronavirus pandemic, clearly had an impact on the decline in Hungarian imports. In terms of data for 2024, so far they are available for the ten months from January to October, with imports up 1.1% and exports up 13.8% compared to the same period last year.
In addition to trade in goods, Poland and Hungary also trade in services to a significant degree. On the import side, Poland ranks seventh among Hungary’s most important partners for foreign trade in services, while it ranks sixth in terms of exports.
Based on the data for Q3 2024, Polish imports of services in Hungary amounted to €218 million, which accounted for 3.5% of total turnover. This represents an increase of 17.5% compared to the previous year. Hungary’s exports of services to Poland amounted to €444 million in Q3 2024, 4.5% of total turnover and 17.4% higher than in the previous year. On the services import side, Hungary is dominated by business services, transport services and tourism, with these three sectors accounting for more than 94% of total services imports in 2023. In Polish services imports, tourism and logistics are the main contributors, with a new cooperation agreement for the latter being signed in spring 2024. Rohling SUUS Logistics, Poland’s largest logistics service provider, announced in May 2024 that its first warehouse in Hungary, with a total area of almost 7,000 square metres, would start operations in mid-summer at HelloParks Maglód’s 45,000 square metre MG3 facility.
The Polish-Hungarian Chamber of Commerce, established in 2020, promotes economic cooperation between the two countries and helps Polish and Hungarian companies to enter the market. The aim of the institution is to provide market and economic-financial information that will facilitate bilateral trade relations and contribute to strengthening scientific-technical and economic cooperation. It also provides a wide range of services to interested companies (legal advice, interpretation, etc.), networking, event organisation, business meetings for member companies and partners of the Chamber, as well as training programmes for them.
An overview of bilateral economic relations would not be complete without an analysis of FDI (foreign direct investment) flows between the two countries. Several large Hungarian companies have decided to enter the Polish market over the last decade, such as TriGránit, Cordia and Richter Gedeon, which have established subsidiaries in Poland. Polish companies in the real estate sector have also entered the Hungarian market (Litwiniuk Property), as well as Greentech Polska, a developer of green energy, and Nowystyl Hungary, a manufacturer and distributor of furniture and interior design products.
After high capital outflows in 2020, there was an increase in the balance in 2021 mainly for Polish FDI shares in Hungary. In the following two years, however, the value of Hungarian FDI shares also increased significantly, with the balance reaching €437.3 million in 2022 and €192.1 million in 2023. There has also been an increase in Polish shares, with the balance reaching €108.6 million in 2022 and €192.1 million a year later. However, the opportunities to be exploited are still significant, especially in the Polish markets. It has been mainly large Hungarian companies that have entered the Polish market so far, so it would be important for medium and small companies to also approach the market. The Polish market is large and its demand could offer significant potential for international expansion for Hungarian companies too.
Overall, there has been no significant decline in Hungarian-Polish economic relations despite the political disputes, although the trade partnership position of both countries has changed in recent years. Polish imports remain high in trade in goods, although we are seeing a slight decline in this segment. Nevertheless, Hungarian exports continue to grow dynamically. Trade in services between the two countries is also important, with both the Hungarian and the Polish side seeing significant growth according to data from Q3 2024. In bilateral capital inflows, the Hungarian FDI share is significant and Poland has long been an important potential for the expansion of large Hungarian companies. Hungary’s foreign policy objectives continue to include strengthening the Polish partnership, expanding economic and trade relations and developing cooperation within the V4 group. Both countries have an interest in maintaining trade, economic and other ties between them in the future. Geopolitical fragmentation may also lead to fragmentation between the individual states concerned, but this is not yet the case in Hungarian-Polish relations. In such an eventuality, the possibility of technology transfer and innovation exchange between both Hungarian and Polish parties would be reduced and narrowed. If trade restrictions were adopted, trade specialisation would be reduced and less exposure to foreign competition would have a negative impact on firms’ costs, increasing the input side.
