Thanks partly to the six-year wage agreement concluded in November 2016, Hungary’s economy is expected to expand by more than 4 percent next year, while the fiscal deficit will continue to be below the 3 percent threshold and resume a descending path in 2017-2020, according to the latest macro-economic and fiscal estimate of the Ministry for National Economy. In coming years, the Ministry prognosticates stable economic growth: 4.1 percent in 2017 and 4.3 percent in 2018.

In order to boost the growth potential of the Hungarian economy, enterprises’ pro-efficiency efforts must be bolstered and thus their capability to become more competitive and profitable, and create more jobs must be improved.  To this end, the Government initiated and concluded a six-year wage deal at the Standing Consultation Forum of the Private Sector and the Government, under which the minimum wage and the guaranteed minimum wage will be raised both in 2017 and 2018, payroll taxes will be reduced, the corporate income tax rate will be cut to 9 percent and further tax cuts will be implemented provided certain real wage conditions are met.

The deal is to substantially influence the macro-economic outlook of coming years and place the Hungarian economy on a faster growth path. Rising wages are seen to fuel consumption and GDP growth. In addition, the current strong labour demand is on the one hand sustained by falling employer taxes and, on the other hand, higher wages contribute to labour supply.  These two factors will drive employment growth. The lower corporate income tax rate is also expected to add to GDP growth through rising private sector investment.

Along with the six-year wage deal, the absorption of EU funds and the building of new homes thanks to CSOK (Family Housing Allowance) are also expected to contribute to faster economic growth. Robust labour demand is driving job growth, reducing the unemployment rate and boosting wages; all these factors are improving household finances. Thus, domestic growth engines within the Hungarian economy are stable, and only a potential external impact might pose risks to expansion. The Government has been strongly committed to a prudent fiscal policy. Accordingly, the fiscal deficit-to-GDP ratio will continue to decline over the observed time horizon, staying below 3 percent, between 2017 and 2020. This will also facilitate steady government debt decreases.

(Ministry for National Economy)