Hungary overview

Tram

In Hungary we focus on:

Strengthening banking sector resilience and the capacity to lend. To the extent that the measures agreed under the 2015 Memorandum of Understanding are consistently implemented, the Bank will be able to support the financial sector in areas such as privatisation and will also support sector consolidation and seek to help banks by providing long term funding on sustainable and commercial terms. The Bank will also continue its cooperation to enhance the framework in support of NPL resolution.

Improving further Hungary’s energy security through strengthening market based regional interconnections, optimising the use of storage capacities and enhancing energy efficiency. The Bank will seek a role in supporting key energy infrastructure projects, including commercial gas interconnections to facilitate the two-way flow of gas and to develop a Hungarian gas exchange. With regard to energy efficiency, significant challenges remain and consequently the potential exists for the Bank to be actively involved in energy savings projects.

Enhancing competitiveness and addressing innovation gaps. The EBRD will support local companies in catching up to the technological frontier, directly and through private equity channels, and will also help them become more competitive. The Bank will pay particular attention to companies operating in the less developed regions. It will also look to build more commercial and competitive market structures in targeted sectors, such as municipal and inter-city transport, to address inefficiencies, insufficient private sector participation and the need for restructuring.

The EBRD’s latest strategy for Hungary was adopted on 23 March 2016
 
 

Current EBRD forecast for Hungary’s real GDP growth in 2017: 3.0%
Current EBRD forecast for Hungary’s real GDP growth in 2018: 3.0%

Economic expansion in Hungary saw the second consecutive year of deceleration in 2016. Last year’s GDP growth, at 2 per cent, was curbed by a dramatic fall in investment, which dropped by 15.5 per cent. As in most other EU new member states, public investment has been decreasing since the beginning of 2016. This can be attributed to the slow start of the new EU 2014-20 programmes. Amid still contracting (though at a slower pace) corporate credit, private investment growth also remained negative. In contrast, household consumption saw an increase of 5 per cent. Household disposable incomes were driven by 6 per cent real wage growth and unemployment falling to just 4.2 per cent in January 2017.

In 2017, cuts in social security contributions and the minimum wage increase will keep consumption strong. The emerging skill-mismatches and worsening demographic trends are expected to put further pressure on earnings, thus weighing on Hungary’s international competitiveness. At the same time, the reduction of the corporate income tax to 9 per cent, the lowest such level in the EU, is expected to positively stimulate corporate investment, including from abroad. On balance, we revise upwards our GDP growth forecast to 3 per cent in 2017, and expect the growth rate to remain at the same level in 2018.

Hungary in the EBRD’s 2016-17 Transition Report

Hungary in the latest BEEPs survey