Hungary productivity gains “modest”, European Commission says

The European Commission (EC) said productivity increases in Hungary have been “modest”, adding that strong economic growth has created favourable conditions for policies that would support improvements in a country report released on Wednesday.

“Productivity growth has improved, but remains below pre-crisis rates, limiting the possibility for income convergence,” the EC said in the report.

“[Productivity growth] has been slow for a decade compared to Hungary’s regional peers. Large productivity differences persist between larger, more capital-intensive foreign firms, and smaller, more labour-intensive domestic counterparts. Only few firms innovate, reflecting weaknesses in the entrepreneurial culture and product market competition,” it added.

The EC acknowledged that policy stimulus has supported productivity-enhancing investment, but noted that labour costs continue to outpace productivity growth.

“In the course of the last decade, the mobilisation of labour market reserves has helped income per head catch up with the EU average, while output per worker has barely grown,” the EC said.

As labour reserves have diminished and the working-age population is set to decrease in the medium term, higher productivity is “essential if living standards are to be brought closer to the EU average”, it added.

The EC said Hungary’s economy is enjoying a “strong cyclical upswing”, but warned that economic growth is set to level off after pent-up consumption unwinds.