Sharp Rise in Energy Costs Putting Strain on Competitiveness

Analysis

Longer-term disruptions in gas supply would lead to significant reductions in production and consequently also to job losses, according to the latest poll by the German-Hungarian Chamber of Industry and Commerce (DUIHK). 

Some 60 companies took part in the DUIHK survey at the end of July, employing around 40,000 people. While the participants and many other DUIHK member companies are mostly hopeful that the energy supply in Hungary can be secured in the upcoming period, there are many uncertainties, and the sharp rise in electricity and gas costs is putting an additional strain on competitiveness.

Supply Security Essential to Keep Economy Going

According to the survey results, every third company surveyed could cope with short-term restrictions in the gas supply with no significant consequences; on the other hand, 35% expect a reduction in production in this case. Energy-intensive industrial companies are much more affected: more than half of them expect a reduction in production even in the event of short-term gas supply restrictions.

The consequences would be more significant if the interruption in gas supply were to last longer. In this case, 42% would have to reduce their production, more than a third would have to shut it down completely, and even in the non-production areas, 28% of the companies assume restrictions. As a result, 45% of respondents would probably also have to lay off employees. Here, too, it is worth taking a particular look at the industrial companies: almost two-thirds of them expect a total stop of production if the gas supply would be restricted over a longer period of time.

Moreover, given the strong integration of production companies in Hungary into international supply chains, they would not only be affected by problems with their own energy supply, but also with those of their suppliers. Nearly half of the companies surveyed expect strong negative effects from gas supply bottlenecks at suppliers. This means that even with a sufficient energy supply in Hungary, problems in other countries could quickly affect the Hungarian economy as well.

Regarding the contractual situation, slightly more than half of the respondents have already secured their gas needs for this year. However, every sixth company still has to conclude new supply contracts to get through the year.

Somewhat more than a quarter of companies currently already have an emergency plan in place in the event of problems with the energy supply. About 37% are currently developing such plans, but just as many companies do not view emergency plans as necessary for the moment.

DUIHK says that more illuminating work on the part of the government is desirable here, so that in the event of an emergency not only state systems but also the entire economy can respond in a prepared manner.

High Energy Prices Threaten Competitiveness

Around half of the companies in the survey already faced price hikes for gas and electricity this year, for another 20%, energy providers have already announced higher prices. The size of the price increases varies greatly, companies reported up to 650% for gas and up to 500% for electricity. The median price increase for gas is around 210% and for electricity about 160%.

In order to avoid liquidity bottlenecks, three out of four of the companies surveyed will probably pass on the higher costs to their customers, the survey reveals. This will put additional pressure on general inflation in the medium term. Competitors who have access to cheaper energy sources may improve their competitive position as a result. On the other hand, 68% of those surveyed fear that their operating result will be negatively impacted, around one-third would therefore also postpone planned investments.

Nevertheless, the higher energy costs do seem to have a silver lining, too: Around 60% of the companies surveyed want to push ahead with measures to save energy and improve energy efficiency in light of the increased energy costs.

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