Estudios Económicos
Hungary

Hungary

Population 9.8 million
GDP 12239 US$
A4
Country risk assessment
A3
Business Climate
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Synthesis

Major macro economic indicatorS

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 4.0 3.1 2.0 3.1
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

Bank transfers are the most common payment methods in Hungary. Based on current local rules companies have to pay almost all invoices by bank transfer. There are very strict rules for cash payments (maximum 1.500.000,00 HUF – cca. 5000 EUR – during one month).

Bills of exchange and cheques are not commonly used as their validity depends on compliance with several formal issuing requirements. These payment methods are not widely known and used.

Since July of 2012 a fast bank transfer been introduced in Hungary which means that domestic bank transfers made between 8am and 4pm are credited the same day. There is a transfer fee of 0,3%, maximum of 6000 HUF (approx. 20 EUR) applied.

Debt collection

As a general rule, clients should be advised to execute written contract and not just order/delivery forms. If possible, it is often advisable to execute, in addition to the main contract, any document which secures the creditor’s claim.

Where possible, it is advisable to avoid taking legal action locally due to the formalism legal procedures and rather lengthy court proceedings: it takes 1-2 years to obtain a writ of execution due to the lack of judges with adequate training in market economy practices and proper equipment. However, there are significant efforts to improve the efficiency of the courts.

Retention of title as a safeguarding measure is not used very often in Hungary.  To be used to the advantage of any supplier it must be agreed upon prior to delivery. A Retention of Title clause has to be explicitly written into the contract and signed by both parties before any delivery.

The legal execution of Retention of Title is not really supported by the legal practice in Hungary. Where there is a liquidation procedure, any creditors with a Retention of Title guarantee have the possibility of being paid off before other creditors via delivery back of the goods.

There are several other ways to ensure recovery:

-          Bank guarantee

-          Payment in advance

-          Personal guarantee

-          Absolute guarantee of debtor’s shareholder(s) and/or associated companies

-          Mortgages or assignments of debts or assets          

Since 15 March 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 current half-year period, plus 8%.

It is advisable to seek an out-of-court settlement based on a payment schedule drawn up by a public notary, in case of default by the debtor, to go directly to the enforcement stage, subject to acknowledgement by the court of that document’s binding nature. The cost of payment schedule drawn up by a public notary approx. 1% of debt or contract amount and creditor have to advance the costs of the proceedings (approx. 300 – 500 EUR).

Holding a debt instrument due and payable (acknowledgement of debt, unpaid bill of exchange, dishonoured cheque, and so on), creditors may obtain an injunction to pay (fizetési meghagyás), using a pre-printed form. That speedier and less-costly summary procedure now allows the notary – if he considers the petition justified – to grant an injunction without hearing the defendant enjoining him to pay the principal and legal costs within fifteen days of serving the ruling (or within three days for an unpaid bill of exchange).

This type of legal action has become mandatory for all claims up to one million Hungarian forints (HUF) – about 3.400,00 EUR – and it can be taken by electronic form as of 1st June 2010.

Since 1st June 2010, the injunction to pay is carried out by public notaries in order to reduce the workload of the courts. Moreover, the Hungarian National Chamber of Public Notary introduced a computerized system to rapidly consider this sort of simplified application, the electronic order of payment being compulsory for legal entities whereas the paper file can still be used by individuals.

Although not mandatory, the presence of a lawyer is nonetheless advisable for this type of procedure. The advance on court fees, at the claimant's expense, amounts to three per cent of the total claim, but minimum 5.000,00 HUF, maximum 300.000,00 HUF (approx. 15 – 1000 EUR).

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. The claimant has to pay additional court expenses of three per cent, but minimum 5.000,00 HUF, maximum 1.500.000,00 HUF (approx. 15 – 5000 EUR).

In Hungary the liquidation procedure will only begin if the debtor is insolvent and if the creditor or the liquidator requires the proceeding.  A debtor is also entitled to ask for liquidation if he or she cannot or does not want to start a bankruptcy proceeding.

If the court decides for liquidation, a liquidator will be assigned. The liquidator will evaluate the financial situation of the debtor and the demands of the creditor and then dispose the distribution of assets and a balance sheet for the liquidation. Based on the liquidator’s reports, the court will rule over who will support the costs, how creditors will receive their demands, the liquidation of the bank accounts, the fulfillment of the liquidation and the termination of the company.

Creditors are required to report their claims to the liquidator within 40 days from publication of the liquidation order in the Companies Gazette. During liquidation, all creditors' claims are to be satisfied to the extent possible and in the order prescribed by the Bankruptcy Act. In the event a creditor fails to report its claim within the 40-day period, it may report the same to the liquidator within 180 days from publication of the liquidation order. The liquidator will automatically reject any claim reported after this 180-day period.

Upon reporting the claim, the creditor is required to pay a so-called "registration fee" to a specific bank account. The fee is currently set at 1% of the amount claimed and a maximum of HUF 200,000 (approx. EUR 700).

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