Hungary 'was deeply affected by Covid pandemic in 2020'

Hungary in 2020, like other countries, was deeply affected by the COVID pandemic, says Ferenc Csáki, Head of Department, OTP Bank Plc., in the regional article about the Hungarian factoring market development included in the most recent edition of World Factoring Yearbook. The pandemic arrived in Hungary later than in many other countries, with the result that the economy continued to grow in the first quarter. In the second quarter, however, the shutdown due to the pandemic caused a deep recession (-13.4 per cent), followed by a significant improvement in the third quarter during which GDP fell by 4.6 per cent, and a further improvement in the fourth quarter when GDP decreased by 3.6 per cent. Thus, in 2020 as a whole - based on preliminary fourth quarter data - the performance of the Hungarian economy may have decreased by 5.1 per cent. The Hungarian factoring market followed the opposite path to that of the GDP in terms of its direction: in 2020, the turnover of the Hungarian factoring market, expressed in HUF (Hungarian forints), increased by 13 per cent. The forint depreciated significantly vis-à-vis the EUR, which meant that the Hungarian factoring market increased only by four per cent in euros, reaching EUR 8.837bn.

Industrial environment

GDP figures show that exports and investment declined particularly sharply in 2020, while the decline in consumption was more modest. During the crisis, especially during the spring closures, the labour market was severely affected. Though much of the impact proved to be temporary, by the end of the year, only the sectors most affected by the pandemic experienced a significant decline (tourism, hospitality, entertainment). The growth in salaries has slowed rapidly, but household savings have risen as a result of thedecline in consumption.

In 2020, the budget deficit reached 8.5-9.0 per cent of GDP. This was a significant deviation from the two per cent of GDP deficit in previous years. This was due to higher government expenditure on health and economic support measures (in response to the pandemic), at a time when government revenues were lower than normal due to the economic downturn. Government debt rose to around 81-82 per cent of GDP by the end of 2020, breaking an eight-year declining trend and raising the rate even higher than it was during 2010-2011 in the aftermath of the global financial recession. These changes have again increased the vulnerability of the Hungarian economy to the international environment, but their extent is not as extreme compared to the deterioration in other countries of the European Union. Meanwhile, the consumer price index increased from 3.4 per cent to 3.7 per cent in 2020, while the central bank base interest rate remained below one per cent.

The government has taken a number of measures to curb the economic impact of the epidemic. One of the most important of these was the announcement of a complete credit moratorium (affecting both individuals and businesses). Nearly 60 per cent of businesses have availed themselves of the moratorium on repayment of loans (and lease payments), which has been extended until mid-2021. The vast majority of the huge state aid package went to the following preferential categories of recipients: entrepreneurs, priority investments and government foundations and churches. The main sources of business support expenditure were EU subsidies, external borrowing and tax revenues deducted by local governments. After the COVID crisis is over, and in the years beyond, it will become clear whether these resources have been used effectively. Despite the economic recession caused by the coronavirus, in 2020 both retail and corporate lending increased. The former increased by 14 per cent and the latter by almost 13 per cent. Lower capital repayments due to the credit moratorium played a significant role in the growth of loans outstanding.

Hungary’s economic results were greatly affected by the depreciation of the Hungarian forint (HUF). The devaluation in 2020 was close to 10 per cent, which, in addition to its impact on inflation, also worsened the performance of the economy’s business sectors. The devaluation had a spectacular impact on the results of factoring companies.

Market performance and supply

The Hungarian factoring market was able to continue its dynamic growth in 2020, reaching another record turnover. Factored turnover reached a new peak of HUF 3,226bn (EUR 8.8bn). The growth of the market was driven by the rise in domestic factoring and was mainly due to the outstanding performance of two major players. Other market participants saw a slight decrease in turnover (around five per cent) or stagnant turnover. The COVID crisis has hit micro and small businesses the hardest, with turnover falling sharply in 2020. The increase in total factoring turnover mainly came from the factoring of medium and large companies. Within this category of clients, especially those operating in sectors where the buyer is a large and strong company, their markets have become sensitive both to the pandemic and to markets’ restructuring in response to climate change. Due to the deteriorating balance sheets of large companies in the manufacturing sectors, complex supply chain finance solutions are becoming more and more important in Hungary as in other countries instead of the classic credit solutions. In Hungary, domestic factoring represents 94 per cent of total factoring volume.


To read the whole article and much more, order World Factoring Yearbook 2021 here