Hungary’s Financial Institutions Face Risk Amid Volatile Economic Outlook

Uncertainty Looms Over Corporate Payment Behavior

The financial landscape in Hungary remains precarious, with a shaky political and economic outlook affecting corporate payment behavior. According to Coface, the country’s risk rating stands at A4, indicating an acceptable average corporate default probability.

Strengths and Weaknesses of the Business Environment

• Strengths:
  • High-quality infrastructure thanks to European funds
  • Integrated supply chain within the European region
  • Trained workforce
  • Low corporate taxation
• Weaknesses:
  • Ageing population
  • Low birth rate
  • Regional disparities in mobility

Domestic Demand Expected to Drive Growth in 2022

Despite these weaknesses, domestic demand is expected to be the main growth driver in 2022, driven by fiscal stimulus measures and robust income gains from a tightening labor market. Household consumption will benefit from government initiatives, including:

• Income tax refunds
• Income tax cuts for young workers
• Re-introduction of the 13th monthly pension

Challenges Ahead

However, inflation remains a constraint on stronger economic growth, with consumer prices exceeding the central bank’s target since April 2021. The budget balance has improved but is still in deficit, with public debt remaining relatively high compared to regional averages.

Additionally, the current account deficit is expected to deteriorate in 2022 due to export growth being sensitive to supply chain disruptions, particularly in the automotive sector. The upcoming parliamentary elections in spring 2022 are also a source of uncertainty, with Prime Minister Viktor Orbán’s Fidesz party facing opposition from united left-wing forces.

Tensions with the European Commission

Tensions remain high between Hungary and the European Commission over issues such as rule of law and funding, posing risks to the country’s financial institutions and economic stability.