La fortuna economica di Viktor Orban si esaurisce

> FOR VIKTOR ORBAN, it was a nightmare. On June 28th over 100,000 people marched in Budapest’s Pride parade, championing LGBT rights and defying a government ban. Hungary’s hard-right prime minister has dominated his country’s politics since 2010. But for months polls have put his Fidesz party well behind a new outfit founded by Peter Magyar, a conservative who rails against government corruption. With a general election due in April, Mr Orban’s formula of bashing gays, migrants and the European Union seems to have stopped working.

> Yet corruption is far from the only reason voters have turned on the government. “The Hungarian economy is going nowhere,” says Peter Virovacz, an economist at ING, a bank. After a good run in the past decade, the country has run out of steam.

> Central Europe’s “Visegrad” states, or V4 (the Czech Republic, Hungary, Poland and Slovakia), have had strong economies for years. Now, apart from Poland, they are going through a rough patch. All four have revised expectations down in the face of Donald Trump’s trade war. Poland is still expecting growth of 3.3% this year, according to the spring forecast of the European Commission. But Hungary is expected to grow by just 0.8%, Slovakia 1.5% and the Czech Republic 1.9%.

> In the past five years the V4 have faced repeated tests. Both the pandemic and Russia’s full-scale invasion of Ukraine, which hugely inflated energy prices, depressed the growth they need to catch up with western Europe. The latest headaches are rising tariffs, which feel especially threatening to open economies such as the V4, and the woes of German industry. Germany trades more with the V4 collectively than with America or China, and is the biggest investor in the region.

> “The broad story is still one of resilience,” says Richard Grieveson of the Vienna Institute for International Economic Studies. Consumption and investment are strong and labour markets are tight. Direct trade flows between the V4 and America are low, so the immediate impact of Trumpian tariffs is relatively modest. Slovak exports to America account for 4% of GDP; for the other three the figure is 1%-3%. Poland has the least to worry about, with a big internal market of 39m people, larger than the other three combined. Exports of goods and services in 2023 came to 58% of Poland’s GDP; for Slovakia it was 91%.

> What will hurt more is the tariffs’ collateral damage, which stems from the V4’s close ties with Germany’s export-dependent industries. These were struggling even before Mr Trump started his trade war. Germany’s economy contracted slightly in both 2023 and 2024. The car industry, Germany’s biggest, faces declining demand and rising Chinese competition. Mr Trump’s 25% tariffs on European car imports have added to its woes.

> That hits the Czech Republic, Hungary and Slovakia hard. Mercedes, Volkswagen (VW) and BMW are big investors in all three countries. Audi (part of VW) employs more than 11,000 workers at a factory in Gyor, in western Hungary. In Kecskemet, south of Budapest, a Mercedes plant has over 5,000 employees. The automotive industry is “the crown jewel” of central Europe’s industrial heartland, as a recent paper by the European Council on Foreign Relations (ECFR) puts it. It generates 9% of GDP in both the Czech Republic and Slovakia.

> The ECFR paper warns that Europe’s industrial might could wither if carmakers close their factories because of competition with Chinese brands. Another possible scenario is a “sinicised heartland”, with Chinese firms acquiring or creating car companies in central Europe. This process has already begun. In May BYD, a Chinese electric-vehicle (EV) maker, announced that it will establish its European headquarters in Hungary, where it is building an enormous factory. China’s CATL is building a huge battery plant for EVs in the Hungarian city of Debrecen. Volkswagen is reportedly considering Chinese offers to buy some of its excess capacity.