Innovation has fallen sharply in Hungary: companies are becoming more and more cautious
According to the K&H innovation index survey for the second half of 2024 , the innovation activity of Hungarian companies shows a significant decline. The innovation sub-index has dropped steeply, while progress in digitalisation has also stalled. It seems that the initial boom around artificial intelligence is running out of steam, and companies are allocating fewer and fewer resources to introducing new products, services and digital developments.
In the long run, this trend could pose serious competitiveness challenges, since technological and business innovation is key to sustainable growth and to maintaining market advantages. The increased caution of companies suggests that economic uncertainty and cost-efficiency concerns are pushing development efforts into the background, which could hurt the country’s economic dynamism and global competitiveness.
A drastic drop in completed innovation
According to the latest research, the level of completed innovation fell significantly in the second half of 2024. While steady growth was seen in previous years, this year there is a clear slowdown, especially among small and medium-sized enterprises. The biggest decline was in digital developments, where fewer companies made IT investments such as buying software, automation or big data analysis.
Decline across industries and regions
According to the K&H innovation index, there has been a significant decline in every industry and region. Industry and trade show a double-digit drop, which pushed the sub-index measuring completed innovation down by 10 points from its peak of 37 points in the first half of 2023, reaching its lowest level ever recorded.
Missing innovation strategy
Only 6% of companies have a formally documented innovation strategy, the lowest share ever measured. This suggests that the vast majority of companies carry out their innovation activities on an ad hoc basis, without long-term planning.
The economic situation is holding back innovation
The decline in companies’ appetite for innovation is partly due to the uncertain economic situation. 66% of the companies surveyed feel that the economic environment has a negative impact on their innovation activities. Many companies are currently focusing more on operational stability, cost cutting and managing market uncertainty.
Digitalisation: no longer a priority?
Surprisingly, digital innovation has also declined in the life of Hungarian companies. 48% of companies do not consider digital transformation important at all, and a further 30% prioritise other matters instead. This is the lowest level of perceived importance of digitalisation since 2021.
Compared with previous years, the share of businesses carrying out digital developments has also fallen significantly: the proportion of companies that implemented some kind of digital development in the past two years dropped from 50% in 2023 to 35%.
The use of artificial intelligence is also declining
Since 2023, the share of companies that use artificial intelligence in some form has been falling steadily. The use of AI-based risk analysis and fraud detection has hit a record low of just 2%, compared with 20% two years ago. The use of self-controlling machines and decision-support algorithms has dropped to 1%, which is practically at the limit of what can be measured.
Big data: no breakthrough
There is no significant progress in big data analysis either. Only 20% of companies regularly use data from smart devices and sensors, the lowest level in the past two years.
Conclusion
The innovation activity of Hungarian companies shows a significant decline, especially in digital development and artificial intelligence. Economic uncertainty, lack of resources and the absence of long-term strategy all contribute to this negative trend. To maintain future competitiveness, it would be essential to strengthen the innovation mindset among companies.