Hungary's GDP will soon be above the EU average after expanding more than 4 percent annually, sources say.
According to Hungary’s Convergence Programme for 2017-2021, the Hungarian economy is set to expand at an annual rate exceeding 4 percent of GDP, which also means that the rate of domestic GDP growth will be above that of the EU’s average.
The document outlining key macro-economic trends predicted in the next four years has been sent to the European Commission by the government on Tuesday. Similarly to the routine of previous years, the elaboration of the Programme was conducted concurrently to the drafting of the budget bill.
According to kormany.hu, Hungary’s economic policy has reached a major milestone in 2017. Although prudent fiscal management and the gradual reduction of the government debt-to-GDP ratio are set to continue, parallel to the mobilization of diminishing labor market reserves the government’s pro-growth instruments are more and more targeted at optimizing economic resources and improving productivity and competitiveness.
Besides improving the productivity of Hungarian labor force, it is equally important that unavoidable wage hikes remain proportionate to productivity gains. Concurrently, another priority is to shift the weight of GDP growth components towards innovation-led economic activities producing higher added value.
Hungary has been one of the few EU member states which have managed to steadily reduce government debt since 2011. Prudent fiscal policy has caused the deficit of the general government budget to fall to 1.8 percent and the general government debt-to-GDP ratio to be reduced to 74.1 percent.
The positive U-turn in labor market trends has caused the number of people in employment to rise, from 3.7 million in 2010 to some 4.4 million recently. Following a downward trend in place for 56 months in a row, the unemployment rate fell to 4.5 percent in the first quarter of 2017.
The six-year wage agreement supports wage growth and places the entire Hungarian economy on a faster growth path. Concurrently to the wage increase, the government has launched a large-scale housing program, aiming to realize social policy objectives as well as to facilitate economic expansion.
There has also been reduction of VAT on basic foods, restaurant services and Internet services which will also expedite disposable income growth, leading to further increase in household consumption.
The new corporate income tax rate of 9 percent is expected to underpin business investment. The accelerated disbursement of EU funds in the new programming period is another measure for improving business climate in Hungary.