OECD Economic Surveys: Hungary 2024
After a strong demand-based recovery following the COVID-19 pandemic, economic activity declined amid high inflation. Growth has restarted in mid-2023 and inflation is receding, but fiscal and monetary policies need to work hand-in-hand to fight remaining inflationary pressures and recreate fiscal space to finance future spending needs.
Productivity growth has slowed since the mid-2000s and structural reforms that facilitate new firm entry and exit and a wider take-up of digital tools are needed. Recent reforms to the anti-corruption and public integrity framework will sustain investor confidence if they are fully implemented.
Social transfers keep income inequalities and poverty low but should be better targeted to those most in need. Women face large employment and pay gaps compared to men and intergenerational mobility is limited. Further expanding access to childcare facilities for young children and improving the education system would help to address these challenges.
Hungary’s green transition can build on past progress but needs to accelerate. This will require more electricity supply from low-carbon sources, with price signals acting as a catalyst. Restructuring energy support by moving from price caps to more targeted cash transfers to vulnerable households would strengthen incentives for energy efficiency improvements and reduce fiscal costs.
SPECIAL FEATURE: GREEN TRANSITION
Raising productivity and strengthening institutions
Productivity growth is key to sustain living standards, especially in a context where the working-age population share is declining due to ageing. Labour productivity growth in Hungary has resumed only recently after a decade of decline, but it remains lower than before the Great Financial Crisis. Boosting productivity will necessitate lifting barriers to entry for new businesses and fostering competition, especially in network sectors such as energy, transport, and telecommunication. Strengthening the insolvency framework and advancing the digitalisation of firms will also be key. Despite a good internet infrastructure, Hungarian firms are lagging behind OECD peers in the adoption of advanced digital technologies, and the digital divide between small and large firms has increased during the pandemic. Lower telecommunication prices and a wider diffusion of digital skills in the population would help improve the situation. Recent reforms to the anti-corruption and public integrity framework will also support the business environment if they are fully implemented.
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