Hungary's Economy Struggles Without EU Funds, GKI Says

On May 1st, Hungary marked the 21st anniversary of its accession to the European Union. While EU membership offers a host of economic advantages — such as tariff-free exports within the bloc, increased foreign direct investment, and free movement of labour — perhaps the most tangible benefit lies in the direct financial support from Brussels. That amount is so significant that without it, the country's economy could be in real trouble, the Budapest-based GKI Economic Research Institute finds.

Since joining the EU, Hungary has received a net total of EUR 67.8 billion in funding — approximately HUF 21.6 trillion. To put this into perspective, this sum represents 26% of Hungary’s estimated GDP for 2024, and exceeds the country’s entire annual investment volume. On average, net EU funds have contributed the equivalent of 2.8% of GDP per year since 2004, rising to 3.5% annually after 2010.

Using its macroeconomic model, GKI has estimated the impact of EU transfers on Hungary’s economic performance. During the first four years of membership, the effect was relatively modest, raising GDP by just 0.3% to 0.6%. In 2007, EU funds played a decisive role in helping Hungary avoid a mild recession.

By 2009, the contribution of EU funds to GDP growth had risen to 1.2%, accelerating further to 2.7% in 2014 and 2.4% in 2015. In the years that followed, their impact ranged between 1.3% and 1.9%. Importantly, in 2010, 2011, and 2013, economic growth would not have occurred at all without EU funding. In other years, a significant portion of GDP growth was directly attributable to EU transfers, and during downturns, they served to cushion the severity of recessions.

Overall, between 2004 and 2023, Hungary’s average annual GDP growth would have been just 0.7% without EU support. With EU funds, the average growth rate was 2.1%. This implies an average annual GDP impact of 1.4 percentage points — twice the growth that could have been achieved through domestic drivers alone.

EU funds have had a positive impact not only on economic growth but also on Hungary’s public finances. On one hand, they replaced certain direct government expenditures. For instance, direct agricultural payments — such as area-based subsidies under the Common Agricultural Policy (CAP) — are paid directly to farmers by the EU, relieving the Hungarian state budget of this burden. Similarly, EU co-financed operational programmes covered a portion of public sector wage increases, such as those for teachers, thereby reducing domestic expenditure on education.

On the other hand, a substantial portion of EU support passed through the state budget as indirect transfers, alleviating the fiscal pressure of major public investments. This includes funding for infrastructure projects such as road, motorway, and railway construction, as well as energy efficiency upgrades in public buildings. Innovation and R&D grants — primarily aimed at boosting competitiveness — were also largely financed through EU programmes. Labour market initiatives, including retraining schemes, public employment programmes, and youth guarantee schemes, operated with significant EU co-financing, thereby lowering the domestic cost of social welfare programmes. Many education and healthcare infrastructure projects — such as the renovation of schools, kindergartens, and hospitals — were also carried out with EU funding.

From the revenue side, these projects contributed to budgetary income. Between 2010 and 2023, approximately 40% of net EU disbursements flowed into the state budget as revenue. After subtracting the 15% in required domestic co-financing, this results in a net fiscal revenue equivalent to roughly 30% of related expenditure. On average, this improved the annual budget balance by around 2.5% of GDP.

It should also be noted, however, that EU funds have not always been used efficiently. Overpricing and limited impact have been recurring issues. Nevertheless, the economic benefits of EU membership are undeniable: over the past 15 to 20 years, EU funding has functioned as a key engine of Hungarian economic growth.