Hungary’s economy grew year-on-year by 4.6 percent in the second quarter and by 4.5 percent in the first half of 2018. These data show that Hungary’s economy has switched into a higher gear, thanks mainly to the stimulating effect of the six-year wage and tax agreement.

The bulk of growth has been generated by market services; this trend is also reflected by recent dynamic VAT revenue growth. The key driver of growth was the six-year wage and tax agreement, due to which economic players received extra income through wage hikes (a higher minimum wage and guaranteed minimum wage) as well as reduced payroll taxes and a lower rate of corporate income tax. Rising minimum wages have also lifted other wages, and the above-10-percent real income growth registered this year has boosted consumption. The number of newly built dwellings also increased outstandingly, by more than 30 percent.

The shift to a capital-intensive economic growth model – which is being underpinned, among other factors, by the reduction of CIT to 9 percent – is indisputably facilitating wage convergence and investment growth.

Hungary’s performance is remarkable even from an international perspective: a recent Eurostat flash estimate showed that the economies of member state grew on average by 2.2 percent in Q2, so Hungary’s rate of expansion is twice as high as that of the EU.

Economic growth in the mid-2000s was financed from borrowed money; on the other hand, current growth is sustainable as it is not upsetting economic balances. The Ministry of Finance continues to expected robust expansion given the historically high levels in economic confidence and other economic indicators.

(Ministry of Finance)