Major macro economic indicatorS
|2020||2021||2022 (e)||2023 (p)|
|GDP growth (%)||-4.5||7.1||5.2||0.1|
|Inflation (yearly average, %)||3.4||5.2||14.8||19.5|
|Budget balance (% GDP)||-7.5||-7.1||-6.0||-4.6|
|Current account balance (% GDP)||-0.9||-4.0||-7.2||-6.0|
|Public debt (% GDP)||79.3||76.8||76.9||75.7|
(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)
Domestic demand will be the main growth driver
The recovery of the economy in 2022 will be driven mainly by domestic demand. Admittedly, growth will not be as strong as in 2021, when figures were boosted by a strong base effect after the sharp recession linked to the first waves of the pandemic, but it will remain brisk. Household consumption will benefit from fiscal stimulus measures, as well as from robust income gains on the back of a tightening labour market. In terms of government measures, consumption will be boosted by income tax refund to families with children, an income tax cut for workers under 25 years of age, as well as the re-introduction of the 13th monthly pension and administrative wage increases. Nevertheless, inflation will remain a constrain for a stronger acceleration of consumption, as consumer prices have exceeded the central bank’s inflation target (3%, ±1 percentage point tolerance band) since April 2021. It reached 7.4% in November as increases of commodities and inputs prices contributed to higher inflation. In 2022, it should accelerate further, but will stay high. Companies are expected to pass higher inputs and wage costs on to consumers, while supply chain disruptions will likely continue to hamper their activity, at least in the first half of the year. The minimum wage was increased by 20% in January 2022 (affecting about 20% of all employees), but the impact on overall wage costs has been dampened by the reduction of employers’ social security contributions. To respond to inflationary pressures, the central bank began a tightening cycle in early summer 2021. Furthermore, investment will also be robust, thanks to the improving economy outlook, increasing capacity utilisation and policy support measures offering attractive financing and grants.
The budget balance improves, but is still in deficit
Despite a strong rebound in economic activity, which, in turn, will support robust revenue growth, the general government deficit is expected to stay high in 2022. After a still-expansionary 2021 budget, various measures will be continued, including temporary tax reductions for small local businesses, support for families and further reduction in employers’ social security contributions, a service benefit for military and law enforcement employees and a reduction in personal income tax for employees under the age of 25. Moreover, public investments will accelerate significantly. Public debt will be reduced, but it remains at relatively high levels, especially compared to the regional Central and Eastern European average, which remains below 50% of GDP.
In 2022, the current account deficit will deteriorate, as export growth will be sensitive to supply chain disruptions. This is especially true for the automotive sector (about a third of manufacturing output and 20% of exports), which suffers severely from a shortage of semiconductors. Indeed, the global chip shortage has forced factories to reduce production. While Hungarian exports should accelerate in the second half of 2022 thanks to abating material shortages, strong domestic demand will trigger imports’ growth, weighing on the trade deficit. In addition, a slow improvement of tourism (8% of GDP) will be a drag on growth of the services balance. The primary income deficit weighs on the current account balance due to the large FDI income on equity.
Upcoming parliamentary elections
Prime Minister Viktor Orbán and his conservative Fidesz-Hungarian Civic Union (Fidesz) party were re-elected for a third four-year term in the April 2018 elections. After a nationalist anti-immigrant campaign, in opposition with the EU on the distribution of migrants, Fidesz obtained a landslide victory with two-thirds of the seats in Parliament. The absolute majority in Parliament allows the government to push through key legislation without needing cross-party agreements, and to increase its control over state institutions. The next parliamentary election is scheduled for the spring of 2022. Six Hungarian opposition parties, including the Democratic Coalition, the Socialists, liberals and the formerly far right and now centre-right, Jobbik, have united in an effort to defeat Fidesz and formed the United Opposition. Polls published in November 2021 indicated a close race between both of them with no certain winner.
Meanwhile, relations with the European Commission remain tense. In late 2020, Hungary (along with Poland) threatened to veto the European Union’s long-term budget and pandemic recovery fund, rejecting any attempts to link the rule of law to gain proceeds from the fund. Both countries have been under EU investigations for undermining the independence of courts, media and non-governmental organizations, which therefore poses the risk of losing tens of billions worth of EU funds.
Last updated: February 2022
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.