Business confidence in former Soviet satellite Hungary has been hit by the international sanctions imposed on Russia following its Ukraine incursion, the country's minister for taxation and financial affairs told CNBC on Monday.
"The impact of sanctions has been more on the indirect side on the confidence channel… It has worked its way through Germany and German business confidence," Gábor Orbán told CNBC in Budapest.
Read MoreEastern Europe fights off sanctions 'chill'
Hungary borders Ukraine to the west and has retained strong ties with Russia since the fall of the Iron Curtain— at the start of this year it signed a 10 billion euro ($12.5 billion) loan agreement with Russia to buy two new nuclear reactors.
However, Hungary also belongs to the 28-member European Union, which has hit Russia with penalties this year for its appropriation of Ukraine's Crimea region. These include restrictions on financing for some Russian state-owned companies and asset freezes on leading Russian politicians.
"I hope that the issues get resolved… and an escalation can be avoided," said Orbán.
Read MoreHungary in 'no rush' to join the euro
—Written by Katy Barnato; reported by Louisa Bojesen
