About the ILO in Hungary

Slowdown of the economy, high inflation, and a stable labour market

The Covid-19 pandemic and the energy crisis caused by the war against Ukraine interrupted the strong growth performance of past years on two occasions over a short period of time. Despite these two external shocks, the growth helped Hungary to further catch up with the average income level in the EU. Hungary’s GDP per person rose from around 69 per cent of the EU average in 2017 to 74.7 per cent in 2022. The labour market has improved significantly, with the employment rate (80.2 per cent) rising well above the EU average and the unemployment rate (3.6 per cent) remaining well below it in 2022. The main poverty indicators also improved, although indicators measuring material deprivation are still among the highest in the EU, indicating that some groups in society have benefitted less from economic growth.*

GDP forecasts say that economic growth will significantly slow down from 4.6 per cent in 2022 to 0.5 per cent in 2023. Expansionary economic and fiscal policies designed as a reply to the pandemic and the energy crisis have reached their limits. High inflation (approx. 25 per cent in 2023, the highest rate in the EU) and the need for fiscal consolidation decrease consumer spending and investment. The high employment levels are stable so far. The key challenge remains the pervasive shortage of skilled workers. Policy responses to the labour shortage focus on prolonging working lives and working hours. Hungary has also began granting more and more short time working visas to foreign workers, while restrictions on the employment of foreign citizens were relaxed.

The tight labour market has been fuelling real wage growth. After years of moderation, wage growth has been accelerating sharply since 2017 with annual increases of 6 per cent and more depending on the sectors. Nonetheless, annual average salaries stand at less than 40 per cent of the EU average in 2021. Hungarian wages remain among the lowest in the EU. Since late 2022, high rates of inflation have caused a decline of real wages.**

A further challenge is sluggish productivity growth. The structure of investments did not favour productivity growth as investments have moved since 2017 from productivity enhancing machinery and intellectual assets to construction. Furthermore, little progress has been made in addressing barriers to productivity growth, especially concerning the weak education and skills, poor health outcomes, low level of innovation and the unpredictable business environment. In 2022, labour productivity in Hungary was 32 per cent below the EU average.

A key challenge of social policies before and during the pandemic has been the missing adequacy and low coverage of social assistance and unemployment benefits. The duration of unemployment benefits is the shortest in the EU at maximum three months. Active labour market policies mostly focus on public works programmes that do not have a strong track record in reintegrating unemployed in the labour market. Outreach to those excluded from the labour market is weak. Income inequality remains below EU average but has been rapidly increasing during the last decade.

The ILO in Hungary

Hungary is a member state of the ILO since 1955.

The ILO has assisted Hungary in its economic and labour market transformation and in its accession to the EU in 2004. Main areas of work included establishing and strengthening social dialogue and tripartism and examining the effects of privatization and transition, developing new active labour market programmes including vulnerable target groups, modernizing labour legislation, adopting international labour standards, and supporting pension reform and a sustainable social security system.

Currently, there is no cooperation with ILO constituents in Hungary. However, Hungary has been hosting the ILO Office for Central and Eastern Europe for 30 years. The office opened in Budapest in 1993.

Text last edited on 07/23

*EU Semester 2023. HU_SWD_2023_617_en.pdf (europa.eu)
**New indicator on annual average salaries in the EU - Products Eurostat News - Eurostat (europa.eu)