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The main constraints on business in Europe and Hungary

The European Commission’s business questionnaire surveys clearly show that in industry, construction and services, shortages of demand and labour are the main headaches for firms in the EU. The Hungarian companies are not independent of global and especially European developments either. Since the second half of 2022, insufficient demand has been the main constraint on industrial firms, which, as in the EU, is linked to high inflation and consequently subdued household consumption. Although labour shortage as a constraint on production has eased in Hungary compared to its local peak in 2021, it remains a problem for nearly a third of Hungarian firms (27%).

Constraints on business in the EU

Since 1961, the European Commission’s Directorate-General for Economic and Financial Affairs (DG ECFIN) has conducted monthly and quarterly surveys of business (enterprise) and consumer sentiment in the member states, based on questionnaires. Currently, around 134,000 businesses and 32,000 consumers are surveyed every month in the EU (the number of interviews/completed questionnaires for businesses is generally around 30% lower due to non-response). The surveys cover a number of areas and themes, one of which focuses on the factors that limit the activities of businesses. The business leaders surveyed can identify the factors that most limit their operations from among six of them:

  1. Shortage of demand
  2. Labour shortage
  3. Material and/or equipment shortage
  4. Financial problems
  5. Other factors
  6. No limits

The figure can be referenced here: https://public.flourish.studio/visualisation/17479886/

According to the results of the latest survey, the main constraint on the functioning of EU companies is currently a lack of demand (cited by 38% of respondents). The high inflationary environment of recent years has eroded real household incomes, and the decline in real wages (the purchasing power of demand) has led to a reduction in household consumption (demand). This trend is also reflected in the survey results. Production difficulties caused by labour shortages are also high among industrial companies in the EU (23% of respondents identified this as a problem). In 2021-2022, shortages of raw materials and commodities also caused serious problems for companies due to damaged supply routes caused by the coronavirus epidemic.

Similar processes are taking place in the construction and service sectors in the EU: insufficient demand and labour shortage are the main constraints on the functioning of companies/enterprises.

The figure can be referenced here: https://public.flourish.studio/visualisation/17480044/

The figure can be referenced here: https://public.flourish.studio/visualisation/17480090/

Following the outbreak of the coronavirus pandemic, we have seen a strong recovery in the European labour market. By the second half of 2021, aggregate employment in the EU exceeded its pre-pandemic level. Job creation remained strong, even during the economic uncertainty caused by the outbreak of the Russia-Ukraine war in 2022. In addition to soft data from questionnaire surveys, hard statistical data also show a growing labour shortage in Europe.

In the European Union, the job vacancy rate was 2.5% in the fourth quarter of 2023, reaching a post-pandemic peak of 3% in the first half of 2022. Before the coronavirus pandemic, the vacancy rate peaked at 2.2% in 2019, meaning that the post-pandemic labour shortage is more severe than before, although the phenomenon is easing.

The figure can be referenced here: https://public.flourish.studio/visualisation/17480129/

Constraints on the functioning of companies in Hungary

Hungary and Hungarian companies are not independent of global and especially European trends either: as a small, open economy, European trends are also spilling over into Hungary, primarily through foreign trade as well as international capital and labour flows, which can be amplified by internal economic effects.

In Hungary, GKI Gazdaságkutató Zrt. carries out surveys among businesses and the general public, and then forwards the results to the European Commission. 1,500 industrial, 1,250 service and 1,500 construction companies are surveyed on the factors limiting their operations.

From the second half of 2022 onwards, insufficient demand has been the main constraint for industrial companies (as identified by 47% of respondents in Q1 2024), which, as in the EU, has been linked to high inflation and subdued household consumption. While labour shortage as a constraint on production has eased from its local peak in 2021 based on the answers, it is still a problem for nearly a third of companies (27%).

The figure can be referenced here: https://public.flourish.studio/visualisation/17480534/

At the regional level, companies in the Czech Republic (48%) and Slovakia (50%) also face difficulties due to a lack of demand, while in Poland both labour shortage (65%) and insufficient demand (42%) are a problem.

In the construction and service sectors, lack of demand and labour shortage were also the most frequently cited obstacles to business operation by executives.

The figure can be referenced here: https://public.flourish.studio/visualisation/17480606/

The figure can be referenced here: https://public.flourish.studio/visualisation/17480646/

In Hungary, too, labour shortage increased in the years following the pandemic, with the country approaching full employment by 2022. In addition to the results of the questionnaire surveys, the evolution of the job vacancy rate also shows a stronger labour shortage in Hungary, although it reaches higher levels in many other EU countries and is easing in Hungary too. According to Eurostat (2024), the job vacancy rate in Hungary was 2.3% in the fourth quarter of last year, while at the EU level it was high in Belgium (4.4%), the Netherlands (4.2%) and Austria (4.1%).

The figure can be referenced here: https://public.flourish.studio/visualisation/17480707/

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