Hungary is on the brink of a severe summer drought, as soil desiccation has accelerated in the recent heatwave following a dry winter and spring. Conditions resemble the summer of 2022, when record drought coupled with heatwaves caused widespread crop damage and took a heavy toll on GDP.

June, typically one of the wettest months, has remained largely rainless outside of the far west, leaving soils critically dry. Satellite imagery shows that over 90% of Hungary experienced either severe or extreme drought before the cold front arrived on Monday, June 7, which is above levels seen in August 2022.

Three years ago, Hungary's agricultural output fell 16%, with maize yields collapsing by 57%, forcing Hungary to import for domestic use. The damage in crops led to a loss HUF650bn (€1.6bn) for farmers. 

Agriculture, typically a minor GDP contributor, subtracted approximately 1.6pp from GDP in 2022, and analysts warn of a similar scenario unfolding this year. Whilst a strong harvest might have helped offset the weak growth outlook, extreme dryness threatens to undermine that hope.

Major sectors like industry and construction are still struggling to rebound, with investments still deep in negative territory, whilst retail sales, seen as the magic bullet by the government to spur growth, is underperforming given the 5-6% growth in real wages.

The government has already slashed its growth forecast from 3.4% to 2.5%, but analysts say that is overly optimistic. The MNB projects 0.8% growth this year, in line with market consensus, but analysts say a deepening drought could erode even these modest projections and GDP could hover between 0-0.5% this year.

Hungary's economy has struggled to regain momentum since mid-2022, alternating between marginal gains and contractions. Seven of the past 11 quarters have recorded negative growth, including four of the last six.

To add insult to injury, the heatwave ended on Monday with an extreme storm, which caused the biggest damage to grid infrastructure in three decades, leaving 350,000 without power. The storm led to major disruptions in rail and air traffic as well. On the positive side, heavy precipitation in Central and Western Hungary is offering a lifeline to maize, sunflower and sugar beet farmers in these regions, but the Great Plains region remained largely unaffected.

Over the longer term, Hungary is facing disproportionately severe impacts from climate change compared to other European countries. 

 Whilst Ireland's average summer temperature has risen by just 0.9°C over the past 50 years, the increase in Hungary and the Balkans has reached 3-4°C, significantly above the global average.

The pace of warming has accelerated since the 1990s, with a temporary slowdown between 2005 and 2010, but has picked up again in the 2020s. This year's data further support the view that the effects of continental climate change will continue to intensify in the coming decades, one researcher said.

The OECD has also identified Hungary, alongside the Czech Republic and Slovakia, as amongst the worst-hit developed countries in terms of rising drought frequency and severity.

The crisis is exacerbated by neglected water infrastructure. Once-functioning irrigation channels have become overgrown and dry, whilst pumping stations have been dismantled or looted. Even farmers willing to invest in irrigation cannot access water. A state-appointed drought commissioner was named after the 2022 disaster, but despite promises, rehabilitation efforts have stalled.

Experts are calling for urgent adaptation strategies, warning that the growing severity of climate trends will make such measures increasingly costly and difficult to implement. Reintroducing wetlands and retaining inland water, rather than draining it, could also be part of a long-term solution, which would require sacrificing some farmland. There is little political will to implement change, analysts say, adding that Hungarian farmers have benefited greatly from land-based subsidies from CAP since the country's EU accession.