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2021 OECD Economic Surveys: Hungary 2021

image of OECD Economic Surveys: Hungary 2021

The COVID-19 pandemic interrupted the strong economic growth performance in 2016-19, which entailed large increases in employment and real incomes, and the lowest unemployment rate in thirty years. The swift vaccination rollout allows a faster recovery from the pandemic from mid-2021 onwards. However, the strength of the recovery is uncertain, reflecting the potential scarring of the economy arising from the prolonged crisis. Looking further ahead, population ageing will lead to a smaller and older workforce, reinforcing the need for improving the productivity performance of the economy to restore the impressive employment and income gains achieved before the pandemic. In the near‑term, underutilised labour resources, such as low‑skilled workers, need to be mobilised through higher labour mobility and skills upgrading. Thereafter, maintaining productivity growth requires improved vocational and tertiary education, more competitive markets, and faster adoption of new technologies, particularly to accelerate the digital transformation of the economy. These policies should be implemented alongside measures to promote green growth and prepare public finances for the long-term fiscal challenges associated with population ageing.

SPECIAL FEATURE: FOSTERING PRODUCTIVITY FOR A STONGER AND SUSTAINED RECOVERY

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Fostering productivity for a stronger and sustained recovery

Weak productivity growth raises concerns for future living standards. Low productivity reflects educational outcomes that are poorly matched to the labour market, and insufficient geographical mobility of low-skilled workers that has created pockets of unemployment in poorer regions while prosperous regions continue facing labour shortages. Moreover, there is a large productivity gap between foreign-owned firms and less productive domestic-owned firms. To improve productivity and ensure a speedy post COVID-19 recovery, education and training policies need to ensure that all workers are equipped with the skills demanded in the labour market. Better functioning housing and transport infrastructures are key to promote labour mobility. Importantly, domestic firms must move up the value chain. To this end, better roads, digital infrastructure and digital adoption would help facilitate integration into regional and national value chains. A more pro-competitive business environment would allow more productive firms to grow and invest in new technologies. This entails a more efficient implementation of existing competition regulation, the withdrawal of distortive government support to less productive incumbents, and streamlining the insolvency regime to accelerate market exit. A stronger digital public administration could support this process.

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