OECD - OECD Economic Surveys: Hungary 2019

The Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

The Survey was prepared in the Economics department by Jens Hj, Gabor Fulop, Ania Thiemann, Rory OFarrell, Orsolya Fedor, seconded from the Hungarian Ministry of the Finance, and Anna Vindics under the supervision of Patrick Lenain. Statistical research assistance was provided by Klaus Pedersen and editorial assistance was provided by Poeli Bojorquez, Stephanie Henry and Sylvie Ricordeau. The previous Survey of Hungary was issued in May 2016.

The Survey was discussed at a meeting of the Economic and Development Review Committee on 6 November 2018 with participation of representatives of the Hungary government and representatives of Denmark and the United Kingdom as lead speakers.

Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at www.oecd.org/eco/surveys .

The economy is prospering . Growth is expected to have risen further to 4 per cent in 2018, following past strong performance. 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 labour shortages have emerged. This has been, accompanied by strong and broad-based wage increases, helping to preserve a high level of income equality, and restarting income convergence. Inflation reached 3.8% in the autumn of 2018, partly as the result of higher energy and food prices, before coming down again (Figure A). Productivity growth has accelerated, although it remains well below real wage growth and the rate prevailing in the decade prior to the international financial crisis.

Output growth is projected to lose some momentum in 2019, as capacity constraints bite and demand is increasingly met by imports . Nonetheless, domestic demand will continue to benefit from rising wages and employment. The latter is, together with demography weighing on labour supply, reducing unemployment. Private investment will be bolstered by the continued expansion of production capacity, EU funds and high housing demand. Exports will benefit from new production capacity, but fast-rising imports will put downward pressure on the current account surplus. Inflation is projected by the OECD to continue to rise towards the central bank's upper bound of the 3 % inflation target with a +/-1% tolerance band. Nonetheless, macroeconomic policy is expected to remain expansionary in 2019: the central bank has announced that it is prepared for a gradual and cautious normalisation of monetary policy while maintaining policy rates, and fiscal policy will remain supportive.

Figure A. Inflation is picking up

StatLink https://doi.org/10.1787/888933896183

but the economy faces risks, including overheating of the labour market