No Match Found
This is the twelfth time that PwC Hungary has surveyed the opinions of Hungarian CEOs about their future outlook, the economic environment, their own business prospects, and the difficulties and threats they are facing. PwC’s experts conducted personal interviews with the CEOs of 267 Hungarian companies between October and December 2022.
The survey shows what the key current and future threats are, how CEOs are preparing for them, how inflation and the energy crisis affect companies’ operation, and when they expect the Russian-Ukrainian war to end, the euro to be introduced in Hungary, and Hungary’s transition to green energy.
Playback of this video is not currently available
Our survey shows that four-fifths of companies are in a constant state of change in order to be viable and successful, both now and in the future. The reason for this is that, in addition to the energy crisis, inflation, macroeconomic volatility and geopolitical conflict, businesses will also need to prepare for cyber risks and the impact of climate change over the next five years. We have organised the survey summary into long-term and short-term challenges, which fall into three groups:
According to 43% of Hungarian CEOs, their company will no longer be economically viable a decade from now if it continues on its current path. This proportion is very similar to the global survey results and shows no sectoral differences in Hungary either.
However, this data point is not just about pessimism. It also shows that more than a third of CEOs already know that they will need to transform to succeed in the future; they will need to change tyres along the way to ensure that their company can tackle new roads.
What could be the new way forward over the next ten years and what transformation is needed?
In Hungary, new technologies and skills shortages will be the main disruptive factors in the coming decade according to CEOs; these are followed by regulatory change and changing customer preferences. Roughly 40% flagged supply chain disruption, and more than a third have already recognised the crucial role of adopting alternative energy sources.
In the global survey, CEOs cited changing customer preferences as the number one challenge that may disrupt their market position over the next ten years.
When a company starts working on building future resilience and preparing for the future, it cannot do so without addressing the impacts of climate change. In the short term, CEOs say climate change will primarily impact their cost profiles, for example, costs due to regulatory change, asset depreciation, insurance liabilities, the rising costs of ETS (Emissions Trading Scheme) credits, or carbon offsetting costs.
Climate change also affects supply chains, for example, changes in the availability of raw materials and manufacturing capacity.
To mitigate climate risks, many companies are trying to undertake decarbonisation initiatives, along with efforts to innovate climate-friendly products and services, or develop a data-driven, enterprise-level strategy for reducing emissions.
In Hungary, the exposure of physical assets to the impacts of climate change still ranks low on the list of CEOs’ concerns, so most CEOs are not planning to implement initiatives to protect them.
Compared to last year’s survey, companies’ exposure to health and cyber risks has eased, while new risks have emerged: in Hungary, 69% of CEOs are concerned about the risks of the energy crisis, and 61% are worried about inflation.
Compared to last year, the proportion of CEOs who feel that macroeconomic volatility and geopolitical conflict are threats has also decreased, however, the majority of CEOs still believe that these two factors pose a risk to their company’s operations.
The top four concerns for Hungarian CEOs for the next 12 months are the energy crisis, inflation, macroeconomic volatility, and geopolitical conflict.
While other threats are less prominent in 2023 than they were in 2022, it is worthwhile to look at what CEOs now consider to be the top-tier risks over the next five years.
Over a five-year horizon, cyber risks are also among the top threats, and while the threat of inflation is expected to diminish, the energy crisis will remain a major long-term risk. Health risks and climate change will also have greater impact. As exemplified by the energy crisis, it is crucial to prepare for these contingencies before they happen.
Confidence in economic growth has changed: in a stark reversal from last year’s optimism, reflecting hope that economic conditions would continue improving as the global pandemic eased, 76% of Hungarian CEOs (compared to 73% of global CEOs) now expect a decline in the rate of global economic growth, and 85% expect the same for Hungarian economic growth.
Like their peers from the UK, France and Germany, Hungarian CEOs see their country’s situation as more vulnerable than that of the global economy, with 85% of them expecting a slower rate of GDP growth in Hungary.
It is the BRICS countries that are more confident about their own economic growth than about global economic growth.
Hungarian CEOs’ confidence in their company’s profitability has fallen, but not as much as their confidence in economic growth. The majority (60%) are still confident about their company’s prospects for revenue growth over the next 12 months, and 78% are confident for the next three years.
In response to near-term economic challenges, CEOs say they are primarily planning to reduce operating costs, followed by raising the prices of products and services, and diversifying their offering.
The actions that CEOs consider to be the least likely to mitigate against the effects of declining growth are reducing compensation, headcount reductions, and delaying deals.
Only a fifth of the companies surveyed are considering redundancies – 9% have already done so and a further 11% are preparing to do so. Meanwhile, CEOs think the Great Resignation will continue, with 34% expecting it to decrease and 20% anticipating a further increase.
Although the main threats today are inflation and the energy crisis, macroeconomic volatility and geopolitical conflict remain financial threats to more than half of the surveyed CEOs. In order to mitigate the impact of geopolitical risks, chief executives are primarily focusing on expanding into new markets, investing in cybersecurity and/or data protection, and adjusting supply chains.
In 2023, to prepare for the future, 82% of companies will invest in upskilling their workforce; 79% in automating processes and systems; 66% in deploying technology (cloud, AI and other advanced tech); and 56% in alternative energy sources.
The majority of CEOs believe that almost all of these investments will help make their company future-proof. However, except for the metaverse, which respondents consider as not yet relevant, there are companies that allocate investment in each area to preserve current business.
To reinvent their business while navigating near-term operating challenges, CEOs need the help of their people – C-suite leaders, middle managers and frontline employees alike. Engaged, empowered organisations move faster, innovate more readily and collaborate more effectively to get things done. Our next set of questions explored these opportunities.
Transformation is based on creating a corporate culture that puts equal emphasis on entrepreneurship and responsibility. The key to all this is trust, and that everyone should be empowered to independently spot and respond to future opportunities.
Trust is already evident in the fact that most of the surveyed CEOs think that the behaviours of employees are almost always aligned with their company’s values and direction, and three quarters of CEOs feel that leaders in their company encourage dissent and debate.
In the ecosystem where companies and other market players collaborate, most companies do not seem willing to collaborate with others even if such relationships would help them create new sources of value. A quarter of respondents do not collaborate with anyone to address societal challenges.
Business-oriented partnerships are primarily forged with governments (at national or local level), academic institutions, and other companies, while collaboration towards societal ends is most common with NGOs.
Collaboration to address societal issues is very important for Hungarian CEOs: when it comes to social responsibility, most of them (72%) flagged education as a key area of focus, followed by sustainable development as a distant second (50%). Climate change ranks alongside diversity and economic recovery as equally important areas of collaboration.
Dr. Barbara Koncz
Partner, PwC Hungary
PR Senior Manager, PwC Hungary