Major macro economic indicatorS
|2020||2021||2022||2023 (f)||2024 (f)|
|GDP growth (%)||-4.5||7.2||4.6||0.2||2.3|
|Inflation (yearly average, %)||3.4||5.2||15.3||19.0||5.4|
|Budget balance (% GDP)||-7.5||-7.1||-6.2||-4.6||-4.1|
|Current account balance (% GDP)||-0.9||-3.8||-8.3||-3.6||-2.6|
|Public debt (% GDP)||79.3||76.6||73.3||71.2||71.6|
(e): Estimate (f): Forecast
- Diversified economy
- High quality infrastructure thanks to European funds
- Integrated within the European supply chain
- Trained workforce
- Low corporate taxation
- Generally positive payment behaviour
- Ageing population, low birth rate
- Open economy exposed to European economic trends
- Regional disparities; lack of mobility
- Deficiencies in vocational education
- Poor levels of innovation and R&D, high content of imported inputs in exports
- High corporate debt level (although decreasing)
- The EU rule-of-law dispute
High inflation drags on growth
Consequences of weak economic activity that materialised with the recession and which started in the second half of 2022 and continued into 2023, will spill over into 2024. The prolonged period of high inflation has eroded disposable income and is a contributing factor to declining household consumption. Hungary’s inflation rate soared to the highest level in the European Union and exceeded 25% in the first quarter of 2023. Despite preceding months which brought a gradual disinflation process, consumer prices were still 20% higher in June 2023 than a year before. The reasons for price acceleration are similar to other countries – the increased costs of imported energy and other economic consequences of war in Ukraine. Also similar, relatively lower commodities prices have had a diminutive impact on inflation, with the latter experiencing overall price increases that spread to other parts of economy, as confirmed by high levels of core inflation that still exceeded 20% in June 2023. Nevertheless, Hungary’s inflation also includes specifics: the relaxation of energy price caps made it accelerate strongly while those still in place on selected food products resulted in companies being compensated with price increases for products not covered by caps. Furthermore, weak harvests in Hungary in 2022 decreased supply and fuelled agricultural product prices. Last, a loose fiscal and monetary policy that started in the pandemic year 2020 and continued to include increased public spending ahead of 2022 elections added to inflation pressure amid a strong labour market through double-digit wage growth. Furthermore, the weakened forint contributed to higher imported goods prices.
Investments will remain muted for as long as the economy benefits only from growing net exports. Lower imports will contribute to the latter amid moderate-low key domestic demand, and improving external demand expected in 2024. The slowdown in Hungary's main EU trading partners has had a major impact on local industry, especially automotive, electronics and machinery, which are highly integrated in Western European supply chains, particularly as Europe could again suffer from potential challenges in energy markets in the winter of 2023-2024. Hungary's economic recovery could remain tepid and only revive during the second half of 2024 given the limited improvement of trade partner activity.
Despite currency exchange volatility, the National Bank of Hungary (MNB) is expected to continue normalising its monetary policy. Since prices started to accelerate in the second half of 2021 a series of hikes were performed elevating the base interest rate to 13% (the highest level among Central and Eastern European countries) in September 2022. Since then, the base rate has remained on that level. However, the central bank has already started to decrease its deposit tender rate. Nevertheless, the MNB is expected to be cautious with monetary easing due to durably high inflation and possible forint depreciation despite the currency’s partial recovery from weak levels recorded in the last quarter of 2022.
Budget deficit moderating but still high
After the high fiscal deficit recorded in recent years, including during 2022 due to the energy crisis and post-pandemic expansionist policies, fiscal consolidation has been supported by windfall profit taxes in the energy, banking, insurance, retail, telecommunications and aviation sectors as well as increased revenues in the environment of high inflation. Nevertheless, the deficit level, although moderating, will remain relatively high in 2023 due to persistently significant public debt servicing and huge government subsidies that are required to attract large FDI projects. Compensation paid to utility companies to cover their losses due to subsidised regulated energy prices has abated in line with falling gas prices.
Economic recovery and less pressure from energy prices should further support fiscal consolidation in 2024. However, the latter is not expected to return to pre-pandemic levels, especially since debt servicing costs will continue to be high while revenues will suffer from the expiration of temporary taxes. Clashes with the European Commission are limiting EU financial transfers to Hungary; however, funds from the previous Multiannual Financial Framework (2014-2020) are still in place, as well as the EU’s direct payments to farmers. Conversely, negative developments in terms of further access to EU funds, resulting in investors' negative sentiment in relation to Hungary, and sovereign downgrades by rating agencies could hinder Hungary’s access to domestic and international debt markets.
Fidesz secures a further term in office
Prime Minister Viktor Orbán and his conservative Fidesz-Hungarian Civic Union (Fidesz) party were re-elected to a fourth four-year term in the April 2022 elections. They secured another supermajority in Parliament, after similar electoral victories in 2010, 2014 and 2018. Fidesz continues to benefit from its ability to govern unilaterally. Despite a challenging economic environment and extremely high food inflation, the government’s popularity has remained relatively unscathed as government-owned or dominated media put the blame for elevated prices on the war in Ukraine and EU sanctions.
Relations with the European Commission remain tense. In 2020, the European Council adopted the “conditionality mechanism” to wield an effective instrument that subjects disbursement to the rule of law in the respective country. Later, the European Court of Justice (ECJ) ruled in 2022 that the Commission could withhold funds to sanction states deemed to be flouting the rule of law. Both Hungary and Poland have been under EU investigations for undermining the independence of courts, media and non-governmental organisations, thereby putting them at risk of losing tens of billions in EU funds. Hungary subsequently introduced only minor changes that did not satisfy the European Commission. The dispute with the EU over the release of funds is set to continue for the foreseeable future.
Fidesz is expected to remain in power until at least the end of its current term, i.e., in early 2026. Local elections are scheduled to take place in October 2024.
Last updated: September 2023
Bills of exchange and cheques are not commonly used since their validity depends on compliance with several formal issuing requirements. Nevertheless, both forms of payment, when dishonoured or duly protested, allow creditors recourse to a summary procedure to obtain an injunction to pay.
The promissory note “in blanco” (üres átruházás, a blank promissory note) – which constitute an incomplete payment deed when issued – is not widely used in Hungary. This is because it qualifies as a negotiable document (securities), which may be transferred by endorsement plus transfer of possession of the document (subsequent to a blank endorsement, only delivery is needed).
Bank transfers are by far the most common payment method. After successive phases of privatisation and concentration, the main Hungarian banks are now connected to the SWIFT network, which provides low cost, flexible, and speedy processing of domestic and international payments. Furthermore, SEPA transfers are also a popular mean of payment because of the developing banking network.
Where possible, it is advisable to avoid taking legal action locally due to the formalism of legal procedures and rather lengthy court proceedings: it takes one to two years to obtain a writ of execution. It is advisable to seek an amicable settlement based on a payment schedule drawn up by a public notary, who includes an enforcement clause that allows creditors, in case of default by the debtor, to proceed directly to the enforcement stage; subject to acknowledgement by the court of the payment agreement’s binding nature.
Since 2014, interest is due from the day after the payment date stipulated in the commercial contract and, unless otherwise agreed by the parties, the applicable rate will be the base rate of the issuer in force on the first day of the reference half-year period, plus 8%.
Injunction of payment and European Injunction of Payment
When in possession of a due and payable debt instrument (acknowledgement of debt, unpaid bill of exchange, dishonoured cheque, etc.), creditors may obtain an injunction to pay (fizetési meghagyás), using a pre-printed form. This more efficient and less expensive summary procedure now allows the notary – if he considers the petition justified – to grant an injunction, without hearing the defendant. The defendant is then instructed to pay both the principal and legal costs within fifteen days of the serving of the ruling (or within three days for an unpaid bill of exchange). This type of legal action has become mandatory for all claims under HUF 3 million and optional under HUF 30 million (about EUR 9,500-95,000).
When the debtor seats or has assets in other European Union (EU) member states, a European Payment Order procedure facilitating the recovery of undisputed debts may be triggered. This type of legal action is conducted digitally from beginning to end as of 2010.
Since 2010, the injunction to pay is carried out by public notaries in order to reduce the workload of the courts. Although not mandatory, the presence of a lawyer is advisable for this type of procedure.
If the creditor has no Hungarian address, this procedure is not available.
In case of objection by the debtor, or if there is no Hungarian address, or if the claim is more than €95,000, the case is treated as a dispute and transferred to ordinary court proceedings. The parties will then be summoned to one or more hearings to plead their respective cases. Ordinary proceedings are partly in writing – with the parties or their attorneys filing submissions accompanied by all supporting case documents (original or certified copies) – and partly oral, with the litigants and their witnesses presenting their cases during the main hearing.
Since 2011, cases involving an amount of more than HUF 400 million (approximately EUR 1.6 million) must be dealt with quickly by the courts by means of a shortened procedure. At any point in this procedure and subject to feasibility, the judge is entitled to make an attempt at conciliation between the parties.
It is relatively common practice to immediately issue a winding up petition against the debtor so as to prompt a speedier reaction or payment. This practice was sanctioned by the 2007 amendment to the Hungarian bankruptcy law, which authorised creditors to issue a winding up petition against a debtor only in they received no response nor payment from the debtor within 20 days of sending a formal notice. In practice, however, it is simple to request the liquidation of a debtor, and creditors regularly use this as a tool in the negotiation process.
Commercial disputes are heard either by the district courts (járásbíróság), set up in commercial chambers, or by legal tribunals (törvényszék), depending on the size of the claim. Payment claims up to HUF 30 million belong to district courts on first instance; above this rate, regional courts are the first instance for these cases. Insolvency procedures and enforcement belong to regional courts at first instance by default.
Enforcement of a court decision
When all appeal venues have been exhausted, a domestic judgment becomes enforceable. It the debtor fails to satisfy the judgment, the creditor can either request an enforcement order from the court, or for a specific performance (payment) through a bailiff, who will implement the different measures necessary to enforce compliance (from seizure of bank accounts to foreclosing real estate).
Regarding foreign decisions, those rendered in an EU country will benefit from special enforcement conditions such as the European Enforcement Order when the claim is undisputed. Nevertheless, for decisions rendered in a non-EU country, Hungarian law provides for a reciprocity principle: the issuing country must be part of a bilateral or multilateral agreement with Hungary.
Even though Hungarian law does not provide formal out-of-court proceedings, private and informal negotiations are held between creditors and debtors in order to avoid judicial insolvency proceedings. This constitutes a practical approach in order to avoid liquidation. If an agreement is reached, they can request the suspension of a judicial proceeding until the agreement is respected.
Restructuring the debt
Under Hungarian law, restructuring is not formally regulated, even though the Hungarian Bankruptcy Act regulates all insolvency processes, including specific deadlines, legal requirements, and rights and obligations for participants. Instead, both bankruptcy and liquidation proceedings offer a debtor company a chance of survival by restructuring its debt in a composition agreement in a ninety-day stay. It is extremely rare to conclude a liquidation process with a surviving company, as the aim of the proceedings is by nature not one of restructuring. From this point onwards, the acts of the debtor are overseen by an administrator. The reorganization agreement must be validated by a majority of creditors and the court must also approve the plan. If a compromise is not reached, the court will terminate the proceedings and declare the debtor insolvent.
If the debt is over 200,000 HUF, the proceedings may be initiated upon demand of either the debtor or the creditor, and a liquidator is subsequently appointed. Creditors must lodge their claim and pay the fees within 40 days of the commencement of the proceedings in order to be listed in the table of creditors and consequently receive a part of the proceeds. The liquidator will then assess the debtor’s economic situation together with the claims, and then provide the court with recommendations on how the assets should be distributed. All insolvency procedures are validated by court, but there are very few checks in place that prevent creditors from liquidating their companies, which makes it a very easy and common practice for failed businesses, hence the relatively high number of insolvencies in Hungary.