OECD Acknowledges Return of Growth, Urges Price Pressure Vigilance

Presenting the report with Finance Minister Mihály Varga in Budapest, OECD Secretary-General Mathias Cormann said "decisive action" had helped bring down inflation and stabilise the exchange rate in Hungary. He added that it was "appropriate" to continue the "gradual and moderate pace of monetary easing...while remaining vigilant to renewed price pressures".

"Reducing the fiscal deficit and public debt, boosting productivity and business sector activity through smarter regulations and more competition, and better targeting support towards vulnerable families are necessary steps to durably reinvigorate growth and prepare for future challenges around population ageing and climate change," Cormann said.

Varga said the OECD survey was "professional" and "well founded", adding that the OECD was better acquainted with the particularities and history of the Hungarian economy than other international organisations. Recommendations in the survey could support Hungary's further development, he said.

The OECD affirmed its forecast for GDP growth of 2.4% in 2024 and lowered the projection for average annual inflation to 3.9%.

It noted "significant risks" to the growth outlook, including a possible increase in non-performing loans as well as uncertainty related to inflation and energy prices. It recommended close monitoring of loan delinquencies and business failures, and said interest rate caps should be phased out, while authorities should be ready to impose additional capital requirements on banks as needed.

The OECD sees the general government deficit narrowing from 6.5% of GDP in 2023 to 4.5% in 2024 and 3.4% in 2025, but pointed to the need for further fiscal consolidation. It said pension reform would be key to maintaining fiscal sustainability and recommended creating "fiscal space" for ageing-related expenditures.

OECD Urges Hungary to Improve Productivity, Implement Anti-corruption Measures

The OECD drew attention to the need for an improvement in labor productivity, aided by stronger competition. It recommended more competition-friendly regulation and a level playing field between private and public enterprises. It also urged reinforcement of the role of the Competition Office.

Hungary's insolvency regime could be improved further by allowing creditors to initiate debt restructuring and simplifying debt restructuring procedures for SMEs, such as by allowing out-of-court settlements, the OECD said.

The OECD urged Hungary to fully implement its new anti-corruption framework.

The organization recommended better targeting of fiscal support programs, better access to formal childcare to allow more women to work, and further improvements in education to advance income mobility.

The OECD suggested that replacing price caps on household utilities with targeted cash transfers would increase incentives to lower energy consumption.