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EC sees Hungaryʼs robust growth as opportunity for reform

The European Commission suggested Hungary could better use its robust economic growth to affect structural and institutional changes that would contribute to sustainable growth over the longer term in an annual country report released on Wednesday, state news wire MTI reports.

"The current good economic environment creates an opportunity to address the main challenges of the economy, in particular related to the shrinking working-age population, low productivity growth, increasing inequalities and low efficiency of natural resource use," the EC said in the report.

The EC said in the report that Hungaryʼs economic growth rate, supported by an increasing number of workers, parallel with only a "modest" increase in productivity, is "set to reach its limits" as the labor market nears full employment.

It faulted government-coordinated wage increases for raising labor costs at a faster rate than productivity growth and said home subsidies have contributed to a rapid rise in housing prices as demand outpaces supply, creating some risks of overheating. The EC was also critical of the governmentʼs procyclical fiscal policy which has limited an improvement in public finances.

In an assessment of action Hungarian authorities have taken on country-specific recommendations issued a year earlier, the EC said "limited progress" had been made on integrating vulnerable groups in the labor market; improving educational outcomes; strengthening primary healthcare and supporting preventive health measures; focusing investment-related economic policy on R+D, transport infrastructure and energy efficiency; improving competition in public procurement; and reinforcing the anti-corruption framework.

The EC said Hungary had made "no progress" on a recommendation to "improve the quality and transparency of the decision-making process through effective social dialogue and engagement with other stakeholders and through regular, appropriate impact assessments", adding that Hungaryʼs stakeholder engagement in developing primary law is lowest among the EU countries in the OECD and that indicators on the use of evidence-based instruments rank the country in the bottom group of EU members states.

The EC published reports analyzing each member stateʼs key socio-economic challenges on Wednesday. The country reports focus on four dimensions: environmental sustainability, productivity gains, fairness and macroeconomic stability.