Ekonomske analize
Hungary

Hungary

Population 9.8 million
GDP 12239 US$
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Synthesis

Major macro economic indicatorS

  2014 2015  2016 (e) 2017 (f)
GDP growth (%) 4.0 3.1 2.0 3.6
Inflation (yearly average) (%) 0.0 0.1 0.4 1,8
Budget balance* (% GDP) -2.1 -1.6 -1.7 -2.4
Current account balance (% GDP) 2.0 3.1 5.4 3.7
Public debt (% GDP) 75.7 74.7 74.0 73.0

*(f): Forecast

STRENGTHS

  • Diversified economy
  • High quality infrastructures thanks to European funds
  • Integrated within the European production chain
  • Trained workforce
  • Low corporate taxation
  • Generally positive payment behaviour

WEAKNESSES

  • Ageing population / low birth rate and high emigration
  • Regional disparities and lack of mobility
  • Shortfalls in vocational education and training
  • Poor levels of innovation and R&D
  • Limited room for manoeuvre in terms of the budget
  • High debt level (>80% of GDP) of companies, but falling
  • Fragility of the banking sector (public and private)
  • Energy dependence: 50% of needs imported, 40% from Russia alone

RISK ASSESSMENT

Upsurge in investment, sustained consumption and exports

The recovery in investment should result in a consequent improvement in the rate of growth. Public investment will recover with the gradual return of European funds (equal to 3% of GDP between 2016 and 2020) and a probable budget stimulus ahead of the 2018 elections. The launch of a public house building program is also scheduled. Under an agreement signed with the EBRD, there should be a further reduction in the special tax on banks, which should help promote credit. The SME sector (an essential element of the economy) will continue to benefit from the growth support Program aimed at encouraging the banks to lend to the sector by granting certain incentives, such as partial cover for interest rate risks. Foreign investors are not going to be left behind and at least one German carmaker is planning on increasing its industrial operations in the country in 2017. Consumption should again feel the benefits of improvements in the employment rate (67% in September 2016) and increases in wages linked with a new increase in the minimum wage and the growing shortage of trained workers in which the Public Works Programs, which employ almost 300,000 people, participate. Households could also benefit from further reductions in the prices of public services (energy). Households could also benefit from further declines in utility prices (energy) and easier access to credit. As a result of the integration of Hungarian industry within the European production chain, exports (95% of GDP) will remain vibrant.

 

Slow pace of budget consolidation

With legislative elections in 2018, the fiscal consolidation will give way to a relaxation consisting in a reduction in social security charges, a lowering of the profits taxation from 19 to 9% and a targeted reduction of VAT. In addition, the restarting of European funding should be accompanied with an increase in public investment. The global deficit should nevertheless remain below the 3% threshold that triggers the European Excessive Deficit Procedure. The primary surplus (i.e. excluding debt interest) however, achieved since 2012, will fall significantly, slowing the elimination of the large public debt. With tax levies reaching 48% of GDP (standard VAT rate and social contributions both at 27%) and spending accounting for 50% of GDP, the room for manoeuvre is limited. The nationalisation of new companies in the energy sector is not impossible and the costly project for the construction by Russia of two additional nuclear reactors at the Paks facility remains current. The State could however withdraw from the banking sector, favouring local buyers. The markets tend to be fairly confident on the progress of the consolidation, as demonstrated by the upgrading of sovereign debt by three leading agencies as investment grade and the issuing of a 10 year bond at a rate below 3% in 2016. As a result of the inducements for banks and households to invest in public debt, the share of the public debt denominated in euros and of the domestic debt in forint held by non-residents fell to 25% at the end of 2016.

 

Comfortable trade surplus, but caution on the part of foreign investors

Despite the expected boost to imports as a result of more dynamic domestic demand, exports of vehicles and automobile components, consumer electronics and electrical goods, drugs, medical equipment and services (medical services, tourism, road transport) should continue to produce a comfortable, even though reduced, trade surplus. Despite the remittances from workers abroad and European grants for the agriculture sector, the income balance is likely to remain in deficit, thanks to the significant stock of foreign investments. The current account surplus is set to shrink. This surplus and the European structural funds proved to be extremely useful between 2012 and 2015, when net private capital flows were negative because of the worrying economic policies of the government. With this now settling down, foreign investors are likely to cautiously begin to return. Their favoured sectors, such as automobiles, electronics and pharmaceutics, are to a large extent outside of the government’s chose areas of intervention. The telecoms, energy, banking and media sectors however remain subject to government pressure. The government has adopted measures (fiscal, price setting, etc.) targeted at large companies, mostly foreign owned, which are reducing their profitability and encouraging them to withdraw in favour of local Hungarian public, as well as private, companies.

 

Viktor Orbán and Fidesz stick to nationalist agenda

The Prime Minister, Viktor Orbán, and his conservative Fidesz-Civic Alliance party was re-elected for 4 years in the 2014 elections. Facing competition from the far right Jobbik party, in third place behind the Socialist party, it is maintaining a nationalist policy which includes opposition to the European Union on the dispersal of migrants and the continuation of sanctions against Russia. V. Orbán however failed to obtain approval by referendum for his migration policies. He could however use the parliamentary route, with the support of Jobbik.

 

 

Last update : March 2017

Payment

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.

Debt collection

Amicable phase

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.

 

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%.

 

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.

 

From 2009, considering trade companies, a mediation to solve an out-of-court settlement must be held by the parties prior to commencing legal proceedings.

 

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).

 

When the debtor 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 has become mandatory for all claims up to one million Hungarian forints (HUF) – about EUR 3,400– and is conducted digitally from beginning to end as of 2010. As a result, ordinary proceedings cannot be started if the claim is purely monetary and inferior to this EUR 3,400 limit.

 

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.

 

Legal proceedings

Ordinary proceedings

In case of objection by the debtor, 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.

 

As of 2011, cases exceeding a value of HUF 400 million (approximately EUR 1.6 million) must be swiftly handled by the courts via shortened legal processes. At any stage of such proceedings and where possible, the judge may attempt to achieve conciliation between the opponents.

 

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.

Insolvency proceedings

Out-of-court proceedings

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.

 

Liquidation

Proceedings may be initiated upon demand of either the debtor or the creditor, and a liquidator is subsequently appointed. Creditors must lodge their claim 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.

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