OECD: Hungary in midst of strong recovery

The Hungarian economy is in the midst of a strong recovery, driven by high levels of employment that are boosting wages, consumer confidence and domestic demand.

The latest report published by the Organisation for Economic Co-operation and Development (OECD) projects growth of 3.9 per cent in 2019 and 3.3 per cent in 2020. Domestic demand is fuelled by strong private consumption, reflecting high real income gains, and dynamic business and housing investments. The unemployment rate has fallen to a historically low level and this has been, accompanied by strong and broad-based wage increases. Furthermore, Hungary continues to successfully attract large inflows of FDI, which have expanded production capacity and boosted integration into global supply chains.

“The Hungarian economy is growing at a rapid pace, with unprecedented levels of employment, unemployment at historic lows and strong wage growth all contributing to a demand-led expansion,” said Alvaro Pereira, director of country studies at the OECD Economics Department.

But this growth has mostly benefited western and central regions of the country while many poor rural regions have been left behind as their economic activity focuses on small-scale farming. Income differences have been further aggravated by the emigration of young skilled workers, leaving behind less skilled and older workers, many of whom have few prospects in the local labour market.

“This excellent performance is not without risks,” added Mr Pereira. “Notably, this concerns growing inequality between Hungary’s regions. Ensuring long-term sustainability will require policies to create economic opportunities for all.”

To counter this unbalanced growth, the OECD suggests the central government afford local authorities greater autonomy to execute projects that benefit the local economy. Better vocational education and training is needed, with courses and curriculum adjusted to the needs of the local labour market.

Ageing will also weigh on public finances and create challenges for service provisions. Population ageing will accelerate over the coming decades, leading to an old-age dependency ratio that is just above the EU’s. Twenty per cent of pensioners receive pension benefits below the poverty line, reflecting problems for low-wage workers with too short careers to accumulate sufficient pension rights and the fact that the lowest receivable pension can be below one-third of the official poverty line.