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Hungary’s structural economic dilemmas

May 26th, 2014

Analysts from right across the political spectrum warn that Hungary should focus more on economic sectors with higher added value, for wages and demand to catch up with western European levels. First and foremost, they believe, the government needs to help Hungarian investors and spend more on education.

In Figyelő, Ottó Sinkó claims that despite promising growth and export data (see BudaPost May 17), the Hungarian economy is facing structural problems. Recent GDP growth has been due to increased external demand, Sinkó notes. He believes that in the past industrial output grew fast because of the availability of cheap and qualified labour. More recently, however, the volume of emigration has increased and as a result, it is getting harder for investors to recruit qualified workers in Hungary. The shortage of labour will lead to higher wages, Sinkó predicts. All this, he believes, will slow down investment and job creation. In other to further help the economy to grow, the government should make sure that a qualified workforce is available, Sinkó recommends.

The government needs to help Hungarian investors who reinvest their profit in the country, economist György Gelencsér writes in Magyar Nemzet. GDP growth has not resulted in more well-being, he remarks. The economy is growing due to foreign investment attracted by cheap labour, and as foreign investors take their profit from the country, neither well-being nor internal demand increase, Gelencsér believes. Instead of attracting companies that are looking for cheap unqualified workers, the Hungarian government should focus on sectors with higher value added which would lead to higher wages and internal demand, Gelencsér concludes.

Magyar Hírlap’s Csaba Szajlai finds it unrealistic to hope that wages will increase faster than productivity. As the average productivity of a Hungarian employee is less than that of her or his counterpart in western Europe, it is not at all surprising that wages are also lower, the conservative economist maintains. He adds that contrary to the widespread belief (see BudaPost May 7), prices in Hungary are not on a par with those in the west of the continent. Citing Eurostat data, Szajlai remarks that Hungary’s per capita economic output equals 54 per cent of the west European average, while prices stand at 57 per cent of prices in western Europe. Hungarian wages will increase only if economic output grows, he adds. This requires more added value, which in turn depends on quality education, Szajlai concludes.

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