Growth and confidence declined in 2022 and early 2023
Despite plummeting economic activity, the labour market remains historically tight
Strong wage growth fuelled inflation in early 2022
Headline inflation has declined but core inflation remains high
Recent inflation in Hungary has been largely driven by food prices
Higher agricultural input price growth led to higher food price inflation in Hungary
Aggregate profits increased in 2022 in manufacturing, but not in agriculture or trade
Inflation disparities between household income quintiles
The Central Bank significantly raised interest rates after mid-2021
The currency depreciated sharply in October 2022 but has recovered ground since then
Credit distribution to households and firms slowed down markedly
The anchoring of inflation expectations in Hungary is more fragile than before COVID
Real house prices are declining
Credit policy has become more prudent and is expected to limit mortgage risks
Economic activity has declined, especially in the construction and trade sectors
Monetary policy tightening has pushed up interest rates on loans
Business failures have increased
Non-performing loans are higher and bank capitalisation slightly lower than the OECD average
Fiscal policy expanded during the pandemic but remained accommodative for long
Debt servicing costs are rising, but debt is mostly in domestic currency
Hungary’s planned allocation of RRP grants over 2023-26
Hungary relies more on VAT and less on income taxes than OECD peers
Both VAT and turnover taxes are high in Hungary
Employer social contributions have fallen, but employee’ contributions remain high
Employment rates are relatively low among low-skilled workers
Addressing the fiscal effects of ageing is key to safeguard fiscal sustainability
Without further reforms, pension expenditure will increase sharply
The benefit ratio of Hungarian pensions is planned to increase between 2019 and 2070