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2019 OECD Economic Surveys: Hungary 2019

image of OECD Economic Surveys: Hungary 2019

The prospering economy has boosted employment and reduced unemployment to historical low levels. The risk of overheating is increasing with double digit growth in wages and higher consumer price inflation, although it remains within the central bank’s tolerance band. The recovery could be prolonged if the supportive macroeconomic policies become more restricitve. Looking ahead, public spending pressures are increasing with population ageing and unless corretive measures are taken public debt may increase again. Reform of the pension system needs to contain rising pension spending and old-age poverty. At the same time, a more flexible health sector is needed to respond to the changing demands arising from population ageing. Economic growth has been geographical uneven as the capital has benefitted from growth enhancing agglomeration effects and some regions, particularly in the west of the country, have benefitting from strong inwards FDIs. On the other hand, poor and rural regions are left behind as they lack integration into local and national supply chains. Development policies tend to pursue centrally determined objectives, while local authorities have few possibilities for identifying and implementing projects that are best suited for bolstering local growth.

SPECIAL FEATURES: AGEING; REGIONAL DEVELOPMENT

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Fostering regional growth and inclusiveness

Regional growth has been uneven in Hungary, leading to a wide dispersion in employment and income outcomes. The divergent growth pattern reflects that the greater Budapest area has benefitted from positive agglomeration effects and the benefits from inward FDI in western and northern regions that has provided important technology transfers as well as links to international supply chains. By contrast, other poorer and rural regions have few linkages with national and international supply chains, holding back growth. Boosting growth in a manner that benefits most people will require further exploitation of positive agglomeration effects as well as the development of local networks that enable poorer areas to make use of their own comparative advantages and join national and global supply chains.

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