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Market Report, "Hungary Defence & Security Report 2014", published

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2013-12-24 21:03:34 - New Defense research report from Business Monitor International is now available from Fast Market Research

The expansion and modernisation of Hungary's military forces and hardware was hampered in 2013 by the centre-right Fidesz party government's firm commitment to reining in the budget deficit to below 3.0% of GDP in an effort to exit the EU's Excessive Deficit Procedure (EDP). With the administration of Prime Minister Viktor Orban staking a significant amount of political capital on staying out of the EDP and facing the prospect of a legislative election in the Spring of 2014, we forecast government defence expenditure to fall 4.0% y-o-y (in dollar terms) in 2014 to US$1.27bn, equating to 1.8% of total government expenditure.

While Hungary's defence and security relations with NATO are set to remain strong in 2014, the government's relationship with the

EU is set to continue as a source of contention for both sides. A number of constitutional amendments made during the course of 2013 have irked the EU, with Brussels accusing the Fidesz government of passing changes that threatens the independence of the judiciary and undermine the rule of law. A number of these amendments have been altered to allow Hungary to continue receiving EU development funds. However, the disagreement has sown potentially damaging seeds of distrust between the administration and European leaders, which have been nurtured domestically by bombastic rhetoric from the government regarding national sovereignty.

Full Report Details at
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We believe this sort of rhetoric from Fidesz will continue up until the general election, and afterwards as our European Country Risk team expects Fidesz to emerge victorious given the popularity of Orban and the lack of enthusiasm for the main opposition Socialists (MSZP). The MSZP are set to contest the election alongside former Prime Minister Gordon Bajnai's Together 2014 alliance, with candidates from only one of the groups contesting each constituency as not to split the centre-left vote. Even in spite of this Fidesz's poll leads are so commanding (around 50% among decided voters) that we do not foresee a likely scenario where Orban will not remain in power following the election. The far-right nationalist Jobbik party are set to remain the third largest party in parliament, but they have seen some of its vote absorbed by Fidesz as the latter has moved further towards the right.

Another four years of Fidesz in power is likely to provide somewhat of a boost to the country's military forces, with the party historically more inclined to spend on defence than an MSZP administration. However, in attempts so far to rein in the fiscal deficit while shielding households from austerity measures the government has not shied away from raising taxes on corporations, notably those with foreign owners. As a result we do not rule out increase taxes on firms operating in the defence and security sector in Hungary during the course of 2014.

* We forecast defence expenditure per capita of population to fall from an estimated US$133.2 in 2013 to US$128.0 in 2014, and falling further to US$125.2 in 2017, with the downward trajectory being driven by cuts to spending rather than population increases.
* With our projections for the Hungarian population's average age to increase over the course of our forecast period the percentage of the population available for military service is set to fall from an estimated 47.2% in 2013 to 46.1% by 2019.

Recent Developments

* In October 2013 Minister of Defence Csaba Hende met with US Secretary of State for Defence Chuck Hagel at a summit of NATO defence ministers in Brussels. During the talks Hende reasserted Hungary's commitment to the NATO mission in Afghanistan, which is set to come to an end in 2014, although a much reduced force will remain in the country to carry out training and advisory missions. Hende also stated that following the withdrawal from Afghanistan the government would seek to redeploy forces in other joint NATO missions, most likely in the Balkans.
* At a meeting of the 'Visegrad Four' countries (Czech Republic, Hungary, Poland and Slovakia) held in Budapest in October 2013, prime ministers of the four countries agreed to the establishment of a joint combat unit by 2016. In addition the countries will draw up a joint defence strategy and engage in annual military training exercises between the countries' respective armed forces. Hungarian Prime Minister Viktor Orban stated that joint work between the four countries' military forces would be essential in the future to rein in costs, stating that 'circumstances today are not inclined towards increased military budgets' according to local media.

About Business Monitor International

Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at

About Fast Market Research

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