Serious Reforms Needed to Escape from the Economic Trap

Hungary’s economic catch-up has stalled by 2026, as the model based on cheap labor, exports and government incentives has reached its limits. According to the latest study by the Hungarian Banking Association, breaking through the economic glass ceiling will require a reduction in government intervention, predictable regulation, and comprehensive reforms in mortgage lending, building energy efficiency, SME financing and digital public services, the business website portfolio.hu reported.

Due to the structural problems of the Hungarian economy, periodic growth phases have not led to sustained, knowledge-based development. While regional competitors have achieved significant productivity gains in recent decades, Hungarian indicators have lagged behind, a situation exacerbated by a lack of digitalization and innovation, as well as labor shortages.

According to a study by the Hungarian Banking Association, economic policy has fallen into an “intervention spiral.” Frequent market interventions, special taxes, and constantly changing legislation erode investor confidence. The government often attempts to counteract this with complex subsidy programs, which further increase bureaucracy, distort the market, and perpetuate uncertainty.

The first prerequisite for catching up is the creation of a stable legal environment that is independent of election cycles. The current high tax burdens – including the bank and excess profit taxes due this year, preliminarily estimated at HUF 494 billion – significantly impair the sector’s ability to lend and take on risk, thereby making financing more expensive for both households and businesses. The authors call for the transparent, pre-determined phase-out of extraordinary sector-specific burdens and market-distorting measures – such as the interest rate cap – so that interest rate protection truly benefits only those in need.

The second key area is the reform of the housing market and lending. Although housing prices have risen significantly in recent times, the domestic mortgage market remains extremely underdeveloped by international standards. Instead of general demand stimulation, experts recommend a targeted system that encourages the purchase of new homes and energy-efficiency upgrades. To speed up lending processes and make them more affordable, it is essential to allow for a broader use of statistical appraisals, streamline notarial procedures, and ensure a direct, seamless connection between the electronic real estate registry (E-ING) and banking systems.

Closely tied to this is the third pillar: the energy retrofit of the domestic building stock, which is also a matter of energy security and competitiveness. Nearly 80% of Hungarian residential properties were built before 1990, and the majority of them are energy-inefficient. Instead of the previous complex renovation programs, which were timed to coincide with elections, a predictable strategy spanning at least fifteen years is needed. The study outlines a modular scheme consisting of a HUF 5 million non-repayable grant and a HUF 15 million green loan, which would be supported by a state-subsidized green housing savings fund and a nationwide, one-stop advisory network.

The fourth area is the restructuring of financing for small and medium-sized enterprises. Although the sector forms the backbone of domestic employment, its performance has steadily declined in recent years. The root of the problem lies in part in the fact that subsidized lending has shifted excessively toward working capital loans, which in many cases has led not to productivity-enhancing investments but to the idling of funds in deposits. According to the Hungarian Banking Association, the current exclusive intermediary model must be abolished, and interest subsidies should be made available directly through the lending banks. In addition, it is crucial to establish financing based on intellectual property for knowledge-intensive companies so that innovation can also serve as creditworthy collateral.