2016 OECD ECONOMIC SURVEY OF HUNGARY

Investing in the Future Budapest, 6th May

@OECD@OECDeconomy

http://www.oecd.org/eco/surveys/economic-survey-hungary.htm

2

Growth has recovered recently

Annual GDP growth (volume)

Source: OECD (2016), OECD Analytical Database.

3

Public debt is decreasing

Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).

Public debt

4

Vulnerabilities have declined

Source: Magyar Nemzeti Bank.

Household loans in domestic and foreign currencies

Household FX loans have been replaced by forint denominated loans

5

The current account deficit is now in surplus

Current account balance

6

The labour market lacks inclusiveness

Source: OECD (2016), OECD Social and Welfare Statistics (database).

Youth unemploymentNot in education or employment (NEET), aged 20-24, 2014

7

The labour market lacks inclusiveness (con’t)

Source: OECD (2016), OECD Social and Welfare Statistics (database).

Female labour force participation rateAged 15-65, 2014

8

Income levels remain low

GNI per capita, 2014

Source: World Bank, International Comparison Program database.

9

Labour productivity has been weak

Labour productivityAverage annual growth rate, 2008-2014

Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).

10

Investment is lower than expected

Source: OECD (2015), OECD calculations based on OECD Economic Outlook: Statistics and Projections (database).

1. The baseline scenario is the projected development of investment from 2008 onwards, based on a simple accelerator model, estimated over the period Q1 1996-Q4 2007.

Bolstering investment

11

Step-up offloading of non-performing assets by the asset management company

Expand capital surcharges on non-performing loans held by banks Bolster banking competition by selling stakes in state-owned banks 12

Non-performing loans are high

Non-performing loans to total loans held by banks

Source: Magyar Nemzeti Bank.

Fund social security cuts with income taxes to broaden the tax base Rely more on consumption taxes Step up the fight against VAT fraud

13

The labour tax-wedge is high

Average tax wedge, 2015Single person at 100% of average earnings, no child

Source: OECD (2016), Taxing wages database.Note: The average tax wedge is the sum of income taxes and social security contributions as a percentage of labour costs.

Continue to cut red tape Make better use of regulatory impact assessments

14

Barriers to entrepreneurship are still significant

Barriers to entrepreneurshipIndex scale of 0-6 from least to most restrictive

Source: OECD (2014), OECD Product Market Regulation Statistics (database).

• Make network sectors more competitive: Introduce market-based pricing to attract new investment Secure non-discriminatory access to networks 15

Telecommunication prices are high

Source: OECD (2015), OECD Digital Economy Outlook 2015.

Monthly prices for mobile services

Note: Prices for a standard package for telecommunication services.

Increase and simplify feed-in tariffs to spur investment in renewables

16

Greenhouse gas emissions can be reduced

Total greenhouse gas emissions divided by GDP

Source: OECD (2015), "Greenhouse gas emissions by source", OECD Environment Statistics (database).

Enhancing skills

17

Increase the focus on training in public work schemes Scale up the wage subsidy programme

18

The low-skilled do not participate enough in the labour market

Employment rates of people with below upper-secondary educationAged 25-64

Source: OECD (2015), Education at a Glance 2015.

Expand early childcare Provide incentives for fathers to share parental leave

19

Mothers do not participate enough in the workforce

Employment rates for mothers with youngest child aged 0-2

Source: OECD (2015), Pensions at a Glance 2015.

Improve working conditions of teachers Postpone tracking and extend compulsory grammar school to enhance general skills

20

Educational outcomes could be improved

Student performance in mathematics in PISA

Source: OECD (2014), PISA 2012 Database.

Continue integrating vocational training programmes into vocational schools

21

Investment in vocational training is key

Share of people having a positive view of vocational education

% of positive responses

Increase funding Expand means tested support for disadvantaged students Strengthen career counselling

22

Completion rates in tertiary education are low

Tertiary completion rates

Source: OECD (2013), Education at a Glance 2013.

• Macroeconomic policies– Public debt and spending are still high.– Non-performing loans are high and credit growth remains subdued. – Labour taxation is high.

• Bolstering private investment – Frequent changes in the regulatory framework undermine investment

incentives.– The effectiveness of the competition framework is reduced by exemptions to

the application of competition policy and entry barriers in network industries.

• Enhancing skills to boost growth– Few public work scheme participants find jobs on the primary labour market. – Young mothers have low labour market participation.– Changing technologies are increasingly making workers’ skills obsolete. – Graduates from the vocational training programmes face high unemployment.– Tertiary education graduation rates remain low and labour market outcomes

are uneven. 23

Main findings

• Macroeconomic policies– Reduce spending to lower the structural deficit.– Step-up offloading of non-performing assets of the asset management company.– Bolster competition in the banking sector by selling stakes in state-owned banks.– Increase the reliance on non-distortive consumption taxes.

• Bolstering private investment– Remove sector exemptions to apply the modern competition policy framework as widely

as possible. – Only allow competition limiting mergers on clear public interest grounds. – Secure non-discriminatory third party access in network sectors.

• Enhancing skills to boost growth– Focus the public work schemes focus on training and on programmes that get workers

into the primary labour market. – Expand early childhood care. Reduce length of parental leave and provide incentives for

paternity leave.– Creating a tool set, including individual learning accounts, to promote lifelong learning.– Integrate the vocational training programmes into secondary vocational schools.– Increase funding and expand means-tested support for disadvantaged students. 24

Key recommendations

25

For more information

http://www.oecd.org/eco/surveys/economic-survey-hungary.htm

Disclaimers:

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.