OECD outlook for Hungary

The latest Economic Outlook published by the Organisation for Economic Cooperation and Development (OECD) says Hungary's recent strong economic performance is projected to continue into 2018, before softening somewhat in 2019. Investment remains a main driver with the resumed disbursement of EU structural funds and domestic and foreign firms responding to capacity constraints.

According to the report, solid private consumption growth will be underpinned by continued strong real wage and employment increases. However, rising inflation is expected to harm cost competitiveness and increasingly constrain exports.

The fiscal stance is expansionary in 2017-18, due to reductions in employers' social security contributions and business taxes along with pro-cyclical spending increases, but is projected to be neutral in 2019. Tightening product markets, double-digit wage growth and the likelihood of inflation surpassing the official 3% inflation target in 2018, all point to the need for a prudent macroeconomic policy stance.

Banks have become more robust and profitable, although they still incur relatively high operating costs. Despite major improvements, the stock of non-performing loans needs to be further reduced. Having a more competitive and efficient banking sector would lower operating costs and facilitate conversion of non-performing loans through market-based burden sharing between debtors and creditors.