Income inequality has been increasing, inequalities in access to public services persist and the proportion of people experiencing difficult living conditions is among the highest in the EU. In February, the European Commission released its 2020 European Semester report, painting a quite dark picture of Hungary. The document is the result of an in-depth review and it assesses the recent structural reforms and the macroeconomic situation of the country.
Labour market, employment, inequalities
The report highlights that the Hungarian economy has been growing since 2014, and it managed to withstand the international growth slowdown in 2019. In times of labour shortage, the government increased the minimum wage and this was coming along with supportive fiscal policy and a large inflow of EU funds. Despite these seemingly favourable conditions, the expansion of the Hungarian economy seems to be reaching its limits by 2020. Employment is nearly full in the labour market, thus job creation will contribute less to economic growth in the future.
In spite the fact that employment increased, not all social groups benefited equally from the labour market expansion. The number of women in work or training is still low which is also due to the limited availability of childcare. Available workforce is also challenged by population ageing and outward migration.
Though unemployment is decreasing, the difference in unemployment rates varies greatly between regions. In 2018, it was 2.0% in West Transdanubia versus 6.6% in the Northern Great Plain.
The benefits of growth have been unequally distributed among income groups.
Labour shortages limit production, since firms in the industry and building sector are especially hit.
Employment and salary gaps between genders and skills groups is still high in Hungary compared to the rest of the EU.
Life is particularly hard of families with several children and the Roma. Regional inequalities do exist too, poverty and social exclusion are concentrated in certain areas, but the key elements of the social safety net have weakened over the past years across the country.
Education
Inequalities persist not only among individuals but schools, too. This is a strong barrier of social mobility since the impact of the socio-economic background of pupils on their educational outcomes is one of the strongest in the EU. The concentration of disadvantaged and Roma children in certain schools has increased in the past decade. Early school leaving is above the EU average, and especially high among Roma. The new strategy on vocational education and training is supposed to attract more students to vocational schools but it basically detaches them from the general education path. The pool of potential higher education applicants is shrinking, which holds back innovation and productivity growth on the long run. The shortage of teachers is increasingly challenging.
Health and healthcare
Health conditions are disappointing at least for two aspects: the health care system’s effectiveness is very limited, furthermore, a large proportion of the population lead an unhealthy lifestyle. These tendencies are reflected in mortality rates from preventable causes. Public spending on healthcare is lower than the EU average, consequently, Hungarians are pushed to rely on out-of-pocket expenditure and to turn to private care to access health services. Health care is available for those who can afford it. Another pain point is that the health system relies mostly on hospitals, whereas little attention is being paid to primary care and prevention.
Public financial management and missing measures to be taken
The report heavily criticizes the management of public finances in Hungary. The government is missing to build fiscal buffers and focuses too much on reducing taxes. Public debt is still high and the ageing population also means a fiscal sustainability risk.
Hungary’s future economic growth should be sustained by private and public investment that enhance productivity. Investment would be crucially important in skills, education and training. Hungary’s adoption of productivity-enhancing digital technologies is however among the lowest in the EU, and it is hindered by low digital skills.
Business environment, competition
The report welcomes the measures taken by the government in order to improve the banking sector assets and lending activity. Still, further measures should be taken to improve the business environment by decreasing administrative burdens, corruption and strenghtening judicial independence.
Competition in general is ruined in Hungary by restrictive regulations and increasing state involvement. Selected companies are supported by the government through large subsidies, tailor-made regulations and specific agreements.
Environmental sustainability
Hungary targeted the reduction of greenhouse gas emissions through phasing out coal-fired power plants. Though the increase of renewable energy sources appear in the National Energy Strategy, wind energy is not considered in the plans. Greenhouse emissions from transport are still increasing signifiantly, and there are no guarantees how the government will provide the necessary infrastructure for alternative fuels. The country is yet at a very early stage of waste management and recycling, further investment and policy implementation would be crucial in these areas.
The report concludes that Hungary has made only limited progress in addressing the previous year’s country-specific recommendations. Nearly no progress has been made in improving social assistance and unemployment benefits. No efforts were made to reinforce the anti-corruption framework, including prosecutorial efforts and access to public information. No progress has been made to address the persisting concerns regarding judicial independence either. The regulatory environment in services has not improved and the quality and transparency of decision-making and social dialogue is still among the weakest in the EU.
The report was published before the massive spread of COVID-19 around the globe. Nobody knows at this moment how the virus will hit our economies and societies, but the outlooks are evolving on a daily basis. For sure, the Hungarian government will have to face even harder challenges than the ones envisioned by this report.[:en]Income inequality has been increasing, inequalities in access to public services persist and the proportion of people experiencing difficult living conditions is among the highest in the EU. In February, the European Commission released its 2020 European Semester report, painting a quite dark picture of Hungary. The document is the result of an in-depth review and it assesses the recent structural reforms and the macroeconomic situation of the country.
Labour market, employment, inequalities
The report highlights that the Hungarian economy has been growing since 2014, and it managed to withstand the international growth slowdown in 2019. In times of labour shortage, the government increased the minimum wage and this was coming along with supportive fiscal policy and a large inflow of EU funds. Despite these seemingly favourable conditions, the expansion of the Hungarian economy seems to be reaching its limits by 2020. Employment is nearly full in the labour market, thus job creation will contribute less to economic growth in the future.
In spite the fact that employment increased, not all social groups benefited equally from the labour market expansion. The number of women in work or training is still low which is also due to the limited availability of childcare. Available workforce is also challenged by population ageing and outward migration.
Though unemployment is decreasing, the difference in unemployment rates varies greatly between regions. In 2018, it was 2.0% in West Transdanubia versus 6.6% in the Northern Great Plain.
The benefits of growth have been unequally distributed among income groups.
Labour shortages limit production, since firms in the industry and building sector are especially hit.
Employment and salary gaps between genders and skills groups is still high in Hungary compared to the rest of the EU.
Life is particularly hard of families with several children and the Roma. Regional inequalities do exist too, poverty and social exclusion are concentrated in certain areas, but the key elements of the social safety net have weakened over the past years across the country.
Education
Inequalities persist not only among individuals but schools, too. This is a strong barrier of social mobility since the impact of the socio-economic background of pupils on their educational outcomes is one of the strongest in the EU. The concentration of disadvantaged and Roma children in certain schools has increased in the past decade. Early school leaving is above the EU average, and especially high among Roma. The new strategy on vocational education and training is supposed to attract more students to vocational schools but it basically detaches them from the general education path. The pool of potential higher education applicants is shrinking, which holds back innovation and productivity growth on the long run. The shortage of teachers is increasingly challenging.
Health and healthcare
Health conditions are disappointing at least for two aspects: the health care system’s effectiveness is very limited, furthermore, a large proportion of the population lead an unhealthy lifestyle. These tendencies are reflected in mortality rates from preventable causes. Public spending on healthcare is lower than the EU average, consequently, Hungarians are pushed to rely on out-of-pocket expenditure and to turn to private care to access health services. Health care is available for those who can afford it. Another pain point is that the health system relies mostly on hospitals, whereas little attention is being paid to primary care and prevention.
Public financial management and missing measures to be taken
The report heavily criticizes the management of public finances in Hungary. The government is missing to build fiscal buffers and focuses too much on reducing taxes. Public debt is still high and the ageing population also means a fiscal sustainability risk.
Hungary’s future economic growth should be sustained by private and public investment that enhance productivity. Investment would be crucially important in skills, education and training. Hungary’s adoption of productivity-enhancing digital technologies is however among the lowest in the EU, and it is hindered by low digital skills.
Business environment, competition
The report welcomes the measures taken by the government in order to improve the banking sector assets and lending activity. Still, further measures should be taken to improve the business environment by decreasing administrative burdens, corruption and strenghtening judicial independence.
Competition in general is ruined in Hungary by restrictive regulations and increasing state involvement. Selected companies are supported by the government through large subsidies, tailor-made regulations and specific agreements.
Environmental sustainability
Hungary targeted the reduction of greenhouse gas emissions through phasing out coal-fired power plants. Though the increase of renewable energy sources appear in the National Energy Strategy, wind energy is not considered in the plans. Greenhouse emissions from transport are still increasing signifiantly, and there are no guarantees how the government will provide the necessary infrastructure for alternative fuels. The country is yet at a very early stage of waste management and recycling, further investment and policy implementation would be crucial in these areas.
The report concludes that Hungary has made only limited progress in addressing the previous year’s country-specific recommendations. Nearly no progress has been made in improving social assistance and unemployment benefits. No efforts were made to reinforce the anti-corruption framework, including prosecutorial efforts and access to public information. No progress has been made to address the persisting concerns regarding judicial independence either. The regulatory environment in services has not improved and the quality and transparency of decision-making and social dialogue is still among the weakest in the EU.
The report was published before the massive spread of COVID-19 around the globe. Nobody knows at this moment how the virus will hit our economies and societies, but the outlooks are evolving on a daily basis. For sure, the Hungarian government will have to face even harder challenges than the ones envisioned by this report.