Hungary's Competitiveness Eroding, Central Bank Warns

In the ever-evolving landscape of global economies, the importance of economic competitiveness cannot be overstated. It is the cornerstone of a nation's ability to sustain growth, attract investment, and improve the living standards of its population. A nation's competitiveness is often a reflection of its efficiency, innovation, and the ability to leverage technology and human capital to drive economic success. However, as recent data suggests, Hungary faces significant challenges in maintaining its competitive edge within the European Union.

According to the latest Competitiveness Index released by the National Bank of Hungary (MNB), Hungary has slipped to 19th place in 2023, down two spots from the previous year, amidst the 27 EU member states. This slight yet indicative decline underscores a broader concern about Hungary's ability to keep pace with its peers, particularly given its performance relative to the Visegrád countries and the EU average.
The descent in competitiveness rankings is particularly concerning in the light of Hungary's position against the backdrop of the European Union's economic landscape. The nation finds itself lagging not only behind the EU average but also significantly trailing the Nordic member states, known for their sustainable growth trajectories and high levels of innovation and economic efficiency.
A closer examination of the MNB's 2023 Competitiveness Index reveals that Hungary's performance deteriorated in 9 out of 14 key areas. Critical domains such as human capital quality and digitalization, which are pivotal for the 21st-century economy, have seen significant setbacks. Other areas such as activating household savings, foreign economy and economic structure, as well as green economy and competitive energy use, also witnessed declines. While there were improvements in areas like SME strategy and modern infrastructure, these gains were not sufficient to offset the broader challenges.
This decline in competitiveness has far-reaching implications, not just for Hungary's economic outlook but also for its societal wellbeing. High inflation rates, significantly divergent from regional trends, have been partly attributed to Hungary's competitive shortcomings. Notably, nearly two-thirds of the inflation surplus relative to the Visegrád countries was driven by food prices, exacerbated by low productivity in the Hungarian food industry and excessive profit growth.
Furthermore, Hungary's energy dependency poses another challenge, exceeding both the EU and regional averages. Addressing these issues requires not only immediate policy interventions but also a long-term strategic vision to enhance competitiveness.
To reverse the tide and ensure sustainable economic convergence, Hungary must undertake a comprehensive competitiveness turnaround, the central bank notes. This involves improving human capital, fostering innovation, and enhancing the efficiency of both the energy sector and the broader economy. As the MNB concludes, restoring balance and rejuvenating competitiveness are essential steps for Hungary to catch up with the European Union's average development level and secure a prosperous future for its citizens.
In the global race for economic prosperity, nations like Hungary must navigate the currents of competitiveness with agility and foresight. The journey is complex, fraught with challenges, but essential for securing a place in the future's economic landscape.