Hungary is politically stable, but checks and balances on executive power and rule of law have been weakened over the past decade. The Hungarian Civic Alliance (Fidesz), led by Prime Minister Viktor Orban, has governed largely unchallenged since 2010. It holds a solid parliamentary majority and enjoys the support of President Janos Ader. Together with its strong control over the state apparatus, this ensures that it can pursue its policy agenda largely unhindered. However, the erosion of independent checks on Fidesz’s power, political control over the media and restrictions on civil society have raised concerns about democratic backsliding and adherence to the rule of law. Fidesz and the Christian Democratic People’s Party (KDNP), are the current rulling parties.  The government’s anti-EU rhetoric, and disagreements with other EU members over immigration and rule of law, will continue to underpin growing tensions with EU institutions. Nevertheless, Hungary remains unlikely to seek to exit the bloc.

While the operating environment is broadly favourable, with pretty low corporate taxes, Fidesz’s nationalist policy agenda and dominant position have increased political risks for businesses. Cronyism and high-level corruption have become increasingly institutionalised as the party has centralised political and economic power. Additionally, the negative impact of the COVID-19 outbreak on Hungary's economy is  high, expiriencing a contraction of 5% of its real GDP in 2020, according to the IMF. This economic downturn in 2020 is likely to ultimately dent Fidesz’s popularity, but government stability is very likely to remain intact.

In its response to the COVID-19 virus outbreak, the government in March 2020 declared a state of emergency, giving the ruling coalition extraordinary powers. A new state of emergency was announced in November 2020 following an increase in infection numbers. Ongoing measures and the potential for renewed restrictions – including localised lockdowns – at short notice will pose operational challenges likely during 2021. Limited job-saving programs have focused on the manufacturing sector; while tax relief for service industries has already ended. Fidesz will also likely use the emergency to further curb the powers of local governments, many of which are controlled by its political opposition. The Hungarian National Bank will maintain a loose monetary policy until 2022, in a bid to support the COVID-19-hit economy. Although growth will be hurt by the uncertainty surrounding the extent and duration of the outbreak,  its real GDP is expected to grow by 4,3% in 2021, according to the IMF.  After experiencing a new peak in the number of infections during mid-March 2021, Hungary is now facing a decreasing trend, and current projections do not forecast any new increase during summer (IHME).

Fidesz’s political dominance has been coupled with the increasing influence of politically affiliated domestic businesses in several sectors. Politically connected businesses have increased their market share on the back of public contracts in sectors such as construction and infrastructure, media and advertising, and energy. This distorts competition for non-affiliated companies, while association with such companies can pose reputational risks for foreign businesses.  Slow and excessive bureaucratic procedures, and high tax and compliance burdens, can complicate operations. Crime poses the main security threat to businesses, albeit a relatively minor one.

Despite its diversified economy, integrated within the European production chain, it is therefore openly exposed to European economic trends. HUngary faces regional disparities, lack of mobility and poor levels of innovation and R&D. Moreover, although the country enjoys a trained labor force, access to labour has become a growing concern for investors in the past few years, as a result of emigration to Western Europe and declining unemployment. This has increased the time and cost of recruitment, and put additional pressure on wage levels, affecting labour costs. The government’s favoured policy approach – to encourage people to have more children and the return of migrants – has so far proved largely ineffective in addressing the problem.

Hungary is a unitary state and parliamentary democracy. The National Assembly (Orszaggyules), whose members are directly elected every four years, holds the most power. Executive power lies with the cabinet of ministers, which is headed by a prime minister. The president, who is elected by a parliamentary majority for five years, has largely symbolic and ceremonial powers, but has the authority to nominate the prime minister.

Hungary is formally a democratic republic with multi-party system, but Fidesz’s intervention in the constitution and restrictions on political campaigning and elections, civil society and media have eroded checks and balances since 2010. The party dominates the state apparatus and clientelist networks linked to Fidesz have increased their presence in several sectors of the economy as well as media. The judiciary remains broadly independent, though it can be subject to political influence in high-profile cases.

The populist, right-wing Hungarian Civic Alliance (Fidesz) leads a government in coalition with the subservient Christian Democratic People’s Party (KNDP). Fidesz has been in power since 2010 and continues to enjoy high levels of public support. Fidesz’s dominance over the public space and media, and changes to the electoral system have given it an advantage over the opposition. This was underlined at the April 2018 elections, where it won almost 50% of the vote, well ahead of the largest opposition party Jobbik on 20%.

Therefore, the country enjoys broad political stability under the Fidesz-led government and the threat of an unconstitutional change in government is low. Fidesz’s dominant position, alongside support from a loyal president and parliament, allows it to govern largely unhindered. However, democratic checks and balances, and the rule of law have weakened over the past decade. Notably, legislation imposed as part of measures to prevent the spread of coronavirus disease 2019 (COVID-19) has endowed the government with sweeping powers with no specific date of expiry. The government’s tendency towards nationalist and protectionist economic policies in several sectors – including energy, utilities, telecommunications, banking, agriculture, and retail – has increased the scope for state intervention that negatively affects foreign investors.

Moreover, since taking office, Prime Minister Viktor Orban’s personalised leadership style and actions to erode checks and balances have tended towards semi-authoritarianism. His anti-capitalist and nationalist rhetoric resonated well in a country in which the economy suffered heavily from the effects of the global financial and economic crises. Meanwhile, his increasingly alarmist anti-EU and anti-immigration rhetoric has gained support among wide sections of the population opposed to an increase in immigration.

Corruption and cronyism linked to high-ranking Fidesz officials have increased in recent years and have contributed to declining public trust in politicians. The threat is most pronounced in public procurement processes, and vested interests can affect policymaking and distort competition for foreign investors. The centralization of political and economic power in Prime Minister Viktor Orbán and his close circle, and the simultaneous erosion of independent checks and balances, pose longer-term threats to stability.

The regulatory environment is complex and the burden of compliance is high. The 2010 constitution protects private property and allows expropriation only for public purposes and with just compensation. Although compensation is normally provided, it is not necessarily at market prices, and delays in payments can occur despite general contract stability. Regarding sovereign stability, the likelihood of the Fidesz-led government repudiating its debts is low. Hungary’s fiscal position has steadily – albeit slowly – improved in recent years. 

Hungary is considered a Flawed Democracy in the 2020 Democracy Index, developed by The Economist Intelligence Unit (EIU), where the country ranks 56 out of 167 countries scored.

The country ranks 40 at the Human Development Index developed by the United Nations Development Programme.

Hungary has benefitted from strong foreign direct investment inflows. Nonetheless, several measures of the Fidesz government – such as ad-hoc taxes on selected industries in which foreign companies mainly operate – and its often arbitrary legislation and appetite for centralization have made Hungary's operational environment less predictable. Red tape remains cumbersome. High-level corruption and clientelism are likely to remain a problem, particularly in government- and EU-funded infrastructure projects, given that those isses have become increasingly institutionalized as the party has centralized political and economic power. The government frequently adopts anti-capitalist rhetoric and has passed legislation that disproportionately affects foreign investors and increases the state’s role in the economy, prompting occasional disputes with EU bodies. Slow and excessive bureaucratic procedures, and high tax and compliance burdens, can complicate operations. 

Restrictions imposed in response to the COVID-19 pandemic are likely to cause significant operational disruption into mid-2021. The government throughout 2020 periodically imposed and lifted restrictions according to COVID-19 case numbers and is likely to continue doing so while the virus is in circulation. These include restrictions on economic activity and on movement, and are sometimes localised and announced at short notice, posing compliance challenges.

More persistent operational risks are driven primarily by shortcomings in the public administration, the complex bureaucracy, and a relatively high compliance and tax burden. Transport infrastructure is generally reliable, with several highways connecting the capital Budapest to neighbouring countries. Water and electricity supplies, and telecommunication services, seldom pose problems for business. Infrastructure is well developed and generally meets Western standards. The state-owned railway network is usually reliable and is extensively used by businesses. However, it is poorly maintained and strikes can disrupt both passenger and freight services. 

Labour and skills shortages have become more problematic in recent years. Low labour mobility and limited opportunities to commute have exacerbated the problem, and the government has so far been unsuccessful in filling the gap caused by labour migration to Western Europe. Problems with recruiting and retaining workers have been particularly acute in the manufacturing and construction sectors, with sectors such as ICT, retail and hospitality also reporting growing problems with sourcing labour.

Overall, Hungary ranks 52 out of 190 countries scored at the 2020 Doing Business Index by the World Bank and 69 out of 198 at the 2020 Corruption Perception Index by the Transparency International Organization.

The security environment is generally favourable for businesses. Violent crime is rare, and petty street crime poses the main security threat to personnel. Hungary is at a lower threat from Islamist extremist terrorism than Western European countries and no known terrorist groups are active. Some far-right groups have militant tendencies and can engage in sporadic violence, but there is no recent precedent of such groups targeting foreign businesses. Occasional public protests against the government do not pose a threat to basic security.

Homicide rates have fluctuated in recent years but are largely in line with the EU average, and are very low in a global comparison. Reported crime rates have been decreasing, but mostly because of statistical methodology changes and legal amendments related to definitions of crimes and misdemeanors. Fraud, including some high-profile cases, remains problematic, while drug use and related criminal activities are rising in some poor rural areas and pockets of the capital, Budapest. Thefts of unattended vehicles and pick-pocketing on public transport remain common in Budapest. Car thefts are often carried out by foreign gangs, which then export the cars. In organized crime, transnational gangs (mostly originating from Balkan countries) increasingly dominate areas such as drugs and people trafficking, counterfeiting, and money laundering.

Occasional pro- and anti-government protests typically attract several thousand people. They have the potential to cause some disruptions to businesses and traffic, mainly in central Budapest. If held, they are unlikely to last for longer than a few hours or a day at a time. Violence is rare and is likely to target mostly police or security personnel, or other protesters. Government premises or vehicles would be the most probable targets for vandalism during these protests. In the first half of 2020, protest risks have been mitigated by the COVID-19 virus pandemic and related government restrictions. Environmental and anti-globalization movements remain underdeveloped and are organized mainly as peaceful social movements.

The risk of Hungary being involved in an inter-state military conflict or the likelihood of civil war occurring in the country is low and highly likely to remain so. The issue of Hungarian minorities occasionally tests diplomatic ties between Hungary and its neighbors (mainly Slovakia, Romania, Serbia, and Ukraine), but this will be most probably contained at the diplomatic and political level. Hungary is also part of the EU (alongside Slovakia and Romania), which mitigates the risk further; whereas its membership in NATO (likewise alongside Slovakia and Romania) will act as an additional forceful deterrent against external assault.

The record-high influx of refugees via Hungary into the EU increased national concerns regarding potential terrorist attacks, particularly in the wake of numerous acts of terrorism in Western Europe since 2015. Hungarian treatment of refugees has been controversial, including the use of force (tear gas and water cannons) to maintain order at borders. That being said, the country will remain an unlikely target of Islamist militant groups. Ethnically motivated violence, targeted primarily at members of the Roma and various immigrant communities, is the primary terrorism risk in Hungary.

Overall, Hungary ranks 24 out of 163 within the 2020 Global Peace Index by the Institute for Economics and Peace.

Hungary is not currently among the most cyber-attacked countries in the world. According to Kaspersky cyber threat map, it ranks as the 52 most cyberattacked. 

Hungary has a moderate continental climate.

Winters are harsh and snowy; summers are long and can become quite hot and thunderstorms are common. The country receives large amounts of rain in February and March.

Hungary is not highly vulnerable to natural disasters.

Torrential rains can lead to deadly flooding and landslides, particularly during the rainy season (May/June to November). Some 300 people were killed in a landslide that buried the village of El Cambray Dos (15 km [10 mi] east of the capital) in October 2015; another 12 people died in a landslide in San Pedro Soloma in June 2017. Furthermore, severe flooding in September/October 2017 left at least 26 people dead and hundreds of thousands of people affected; numerous roads and bridges were blocked by the floodwaters.

Forest fires are common during the dry season.