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EC says Hungary macro imbalances deserve “decisive policy action”

EU

Hungary's macroeconomic imbalances “deserve monitoring and decisive policy action,” the European Commission said on Wednesday, summarizing the findings of an in-depth review. In May 2012, the Commission said Hungary was experiencing “serious imbalances,’ especially with regard to its net international investment position – the difference between the country's external financial assets and liabilities – and its high level of state debt. In a report published last November, the Commission said these indicators are still “above their indicative thresholds.” The unemployment rate and private sector debt indicators are “slightly above” their respective marks, it added.
    Private sector debt, notably household debt, must be reduced to correct the imbalances, the Commission said in the November report. Hungary's growth potential has been eroded by historically low investment rates as corporate lending falls rapidly “against the background of policy uncertainty and extra burdens on the financial sector,” the Commission said in the report published in November.
     The Commission acknowledged in the report that Hungary's state debt is “slightly declining” but said it is “still substantial” and, together with policies that negatively affect the business environment, imply "increased vulnerabilities". In conclusion, the Commission said in the November report that it would be “useful...to examine further the risks involved and progress in the unwinding of imbalances in an in-depth analysis.” The Commission published the findings of the review on Wednesday along with those of twelve other members states earlier identified as showing signs of macroeconomic balances. The Commission will make recommendations for correcting these imbalances and preventing new ones on May 29.

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