The European Commission said Hungary continues to face vulnerabilities related to high government debt and government financing needs, competitiveness, and home prices in a package of policy guidance for member states adopted on Wednesday.
An in-depth look at of the Hungarian economy conducted by the EC earlier in 2026 showed an increase in state debt as a result of the high fiscal deficit and debt servicing costs. The review also identified pressure on competitiveness from high wage growth and risks to external balances posed by substantial energy imports. The EC underscored a further acceleration of home price growth on the back of extensive demand-supporting measures.
State intervention, such as price and interest-rate caps, are costly and make the business environment less predictable, while subsidized lending programs impair the functioning of the banking system and monetary policy, the EC said.
Hungary's state debt, relative to GDP, is expected to rise from around 74.6% in 2025 to 76.8% in 2027, largely due to big budget deficits.
The European Commission noted that Hungary faces the highest level of interest expenditure in the EU, at close to 5% of GDP in 2024, a burden that limits the country's fiscal space to support economic growth when the economy faces shocks or performs below its potential.
It pointed to the additional risk and cost to debt management of Hungary's significant reliance on retail securities.
The EC warned that a projected increase in pension costs and the gradual decline in pension adequacy for low-income earners could raise Hungary's state debt over 100% of GDP in the next decade if ageing-related spending remains unaddressed. The EU's executive also underscored equity issues noting a decrease in the average value of pensions compared to wages over the past decade and a half due to rapid wage growth.
Hungary's spending on healthcare is well under the EU average, while expenditures on education and R+D are among the lowest in the EU, the EC said. Expenditures on economic stimulus, such as corporate subsidies, are well above the EU average due to increased state involvement in the economy, it added.
Despite high spending on administration, institutional quality and government effectiveness are among the lowest in the EU, reflecting overpriced public procurement, low levels of transparency and accountability, the EC said.
The tax system is overly complex and is undermining growth, competitiveness and income inequality, it added.
The EC said Hungary's current growth model "has reached its limits" and additional growth will need to come from innovation, and investment in high value-added activities.
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