Hungary dropped two spots to 19th in a gauge of competitiveness in the EUR-27 compiled by MNB, the central bank noted. Hungary scored 46.6 points in the ranking, under the 51.4-point EU average, it added.

To continue the past decade of sustainable convergence and achieve the EU's average level of development will require a recovery of balances "as soon as possible" and a "full turnaround" in terms of competitiveness, MNB said.

"A switchover of the Hungarian economy from a growth model based on quantity to one based on quality is indispensable for that competitiveness turnaround and for sustainable convergence, but will require far-reaching structural reforms," it added.

In a presentation of the report, Zsolt Kuti, an MNB director said Hungary could choose between two models of convergence, one a model for growth focused on incentives to drive demand, and the other a supply-side-based model that strengthens competitiveness and stability. 

He acknowledged that improving competitiveness was a "bumpy road" that required measures to reach critical mass, but said it was the "right path".

To achieve sustained and sustainable convergence, Hungary's growth model needs to switch to a knowledge- and technology-driven one that weighs environmental factors, too, he added.

He said Hungary could tap "significant growth reserves" by reducing energy dependence and boosting renewables uses, increasing credit penetration, deepening digitalization, raising the share of exporting SMEs and increasing value added, while cutting the number of early school leavers and lowering the number of avoidable deaths by raising spending on healthcare.