Promoting a stronger and more inclusive economy OECD Economic Survey Hungary 2019 Budapest
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The OECD Economic Survey of Hungary 2019 document discusses several key points: 1) The Hungarian economy is growing strongly but policies are needed to address risks to the recovery. 2) Greater economic inclusiveness would bolster growth as poverty and unemployment remain issues in some regions. 3) Population aging will significantly increase costs related to pensions and healthcare, which need to be addressed through reforms.
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Promoting a stronger and more inclusive economy OECD Economic Survey Hungary 2019 Budapest
- 1. PROMOTING A STRONGER AND MORE INCLUSIVE ECONOMY Budapest, January 31st 2019 @OECD @OECDeconomy http://www.oecd.org/eco/surveys/economic-survey-hungary.htm OECD ECONOMIC SURVEY OF HUNGARY 2019
- 2. • The economy is growing strongly • Policies should address risks to the recovery • Greater inclusiveness would bolster growth • Ageing-related costs are increasing 2 Key messages
- 3. 3 The recovery remains strong -8 -6 -4 -2 0 2 4 6 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 Quarterly GDP at seasonally adjusted annual rates
- 4. 4 Domestic demand is driving growth -12 -10 -8 -6 -4 -2 0 2 4 6 2010 2011 2012 2013 2014 2015 2016 2017 2018 Government final consumption Private final consumption Gross capital formation Net trade of goods and services GDP Quarterly % change at seasonally adjusted annual rate
- 5. 5 Employment is at unprecedented levels and unemployment at historically lows 95 100 105 110 115 120 125 130 0 2 4 6 8 10 12 14 2010 2012 2014 2016 2018 Unemployment rate (left axis) Total employment (right axis) % of labour force Index Q1 2010 = 100
- 6. 6 Improving well-being is key 12 23 25 26 27 30 31 31 31 32 33 Work-life balance Housing Education and skills Jobs and earnings Environmental quality Income and wealth Civic engagement Health status Social connections Personal security Subjective well- being Better Life Index, country rankings from 1 (best) to 35 (worst), 2017¹ 20% top performers 60% middle performers 20% bottom performers Hungary Source: OECD (2017), OECD Better Life Index, www.oecdbetterlifeindex.org. 1. Each well-being dimension is measured by one to four indicators from the OECD Better Life Index set. Normalised indicators are averaged with equal weights.
- 7. 7 Wages are rising fast 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 2010 2011 2012 2013 2014 2015 2016 2017 2018 Growth (y-o-y) in monthly earnings in the private sector
- 8. 8 Inflation is on the rise -2 -1 0 1 2 3 4 5 6 7 2010 2011 2012 2013 2014 2015 2016 2017 2018 Inflation Inflation tolerance band Headline inflation Core inflation Source: OECD (2018), OECD Main Economic Indicators (database). 1. Core inflation excludes energy and food. Three-month moving average for monthly earnings in the private sector.
- 9. 9 Ageing is becoming a challenge 0 10 20 30 40 50 60 2016 2020 2030 2040 2050 2060 2070 Old age dependency ratio Ratio of population aged 65+ per 100 population 20-64 1. Data are based on the technical assumptions by the EU AWG, i.e. convergence towards the EU mean. Source : European Commission (2018), "The 2018 Ageing Report - Economic & Budgetary Projections for the 28 EU Member States (2016-2070)", Directorate- General for Economic and Financial Affairs, Institutional Paper 079, Luxembourg.
- 10. 10 Ageing cost could impact on public debt 0 20 40 60 80 100 120 140 160 180 200 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 General government debt, Maastricht definition, as a percentage of GDP¹ Baseline Not offsetting increase in age-related costs Consolidation effort Lower GDP growth by 1 % pt per yer
- 11. • Gradually increase policy interest rates • Continue to exit from unconventional monetary policy measures • Tighten fiscal policy to avoid overheating of the economy 11 Macro-policy recommendations
- 13. 13 Hungary attracts foreign investment 0 10 20 30 40 50 60 70 80 90 100 SVN LTU OECD AUT POL EURO zone SVK LVA HUN CZE EST Stock of inward FDI as a percentage of GDP Source : UNCTAD (2018), OECD Economic Outlook: Statistics and Projections (database).
- 14. 14 FDI is concentrated in the west Gross domestic product per capita in HUF million, 2016
- 15. 15 Overall productivity is low 40 50 60 70 80 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Real GDP per persons employed, in USD thousand, constant prices, 2010 PPPs¹ Hungary Austria Germany EU28 1. PPPs: purchasing power parities. Source: OECD (2018), OECD Productivity Database .
- 16. 0 50 100 150 200 250 LVA POL HUN TUR LTU CHL CZE EST SVK PRT GRC SVN ESP KOR NZL JPN ITA DEU ISR FRA GBR NLD AUT FIN ISL CAN BEL DNK AUS SWE USA CHE LUX IRL NOR Domestic value added embodied in foreign final demand per worker In USD thousand 16 Domestic producers could benefit more from foreign investment Note: Domestic value added embodied in foreign final demand per worker refers to domestic employment embodied in foreign final demand. Business activities also include real estate and rental services. Source: OECD (2018), OECD STAN (database); and OECD (2018), Trade in Value Added (TiVa) (database), October.
- 17. 17 Continuing to fight corruption is key 0 10 20 30 40 50 60 70 80 NZL DNK FIN NOR CHE SWE CAN LUX NLD GBR DEU AUS ISL AUT BEL USA IRL JPN EST FRA CHL PRT ISR SVN POL LTU LVA CZE ESP KOR ITA SVK GRC HUN TUR COL MEX Corruption Perceptions Index 2017 on a scale from 0 (very clean) to 100 (highly corrupt) Source: Transparency International
- 18. • Allow local authorities to identify and execute projects that develop their local economy. • Give vocational schools greater autonomy to specialise and adjust courses and curriculums to local labour market needs. • Establish a dedicated anti-corruption agency 18 Recommendations to boost growth locally
- 19. 19 Labour market shortages are starting to bite 0 10 20 30 40 50 60 70 80 90 100 68 70 72 74 76 78 80 82 84 86 88 2010 2011 2012 2013 2014 2015 2016 2017 2018 Capacity utilisation Labour shortage indicator¹ 1. Percentage of manufacturing firms pointing to labour shortages as a factor limiting production. Source: Eurostat Industry database.
- 20. 20 Labour mobility is low 0 5 10 15 20 25 30 35 40 45 50 SWE POL DNK GBR ESP SVK FRA NLD LVA GRC EST FIN EU BEL PRT IRL AUT ITA DEU LUX LTU HUN SVN CZE Share of employees staying 10 years or more in the same company or organisation%
- 21. 21 Poorer regions have fewer jobs 1. Data refer to the population aged 15 to 74. Source: Adapted from Hungarian Central Statistical Office (2018), "6.2.1.1. Economic activity of population aged 15–74" and "6.2.1.3. Number of employed persons", Tables (STADAT) ; and Ministry of Interior. 40 45 50 55 60 65 2011 2012 2013 2014 2015 2016 2017 Employed persons excluding participants in the Public Work Scheme as a percentage of the population¹ Central Hungary Central Transdanubia Western Transdanubia Southern Transdanubia Northern Hungary Northern Great Plain Southern Great Plain
- 22. 22 Higher-skilled workers have more jobs 20 30 40 50 60 70 80 90 Northern Hungary Northern Great Plain Western Transdanubia Southern Great Plain Southern Transdanubia Central Transdanubia Central Hungary As a percentage of working-age population by region, 2017¹ Less than primary, primary and lower secondary education Tertiary education Source: Eurostat (2018), "Regional employment", Eurostat Database . 1: Regions are ranked in descending order by the employment rates of the population aged 20-64 with tertiary education. Working-age population refers to those aged 20-64.
- 23. 23 Many mothers with young children are out of the labour market 0 20 40 60 80 100 Hungary European Union Average of top 5 EU performers As a percentage of working-age female population, 2017¹ Mothers with one child below 6 years Mothers with one child above 12 years 1. Data refer to population aged 15-64. Source: Eurostat (2018), "Gender equality", Eurostat Database .
- 24. • Continue to reduce public work schemes • Enrol participants and other job seekers in training programmes that leads to jobs • Extend duration of unemployment benefits • Provide geographical mobility support and activation measures • Better work-life balance for mothers: – Expand the supply of crèches – Reduce parental leave and expand paternity leave 24 Recommendations to address labour market challenges:
- 26. 26 Public spending on pensions is relatively low 0 2 4 6 8 10 12 14 16 CZE LUX HUN SVN BEL ESP GRC PRT AUT A. As a percentage GDP
- 27. 27 Poor pensioners are found in poor regions Average of full pension provision by county, as a percentage of net monthly earnings, January 2018
- 28. 28 Ageing-costs will increase 6 8 10 12 14 16 18 2020 2030 2040 2050 2060 2070 As % of GDP Total ageing related spending Source : European Commission (2018), "The 2018 Ageing Report - Economic & Budgetary Projections for the 28 EU Member States (2016-2070)", Directorate- General for Economic and Financial Affairs, Institutional Paper 079, Luxembourg.
- 29. 29 People that interrupt their careers have low pensions 50 60 70 80 90 100 HUN GRC CHL TUR MEX POL ISR ISL ITA FIN EST JPN DEU AUT CZE USA KOR NLD OECD PRT SVK BEL SWE CHE SVN CAN LUX DNK ESP NOR FRA AUS IRL NZL GBR Gross pension entitlements as a percentage of full-career entitlements, mandatory pensions only
- 30. 30 Low-income retirees slide into poverty 0 10 20 30 40 50 60 65 70 75 80 85 90 95 100 % of average monthly net salary Scenario 1: Full career on minimum wage Scenario 2: Short career on minimum wage Scenario 3: Women on minimum wage and having 2 children Age Poverty line
- 31. • Raise the statutory retirement age to 65 by 2022. Then link to gains in life expectancy. • Introduce a basic state pension for all pensioners. • Other measures include: – Introduce constant accrual rates – Remove all possibilities for early retirement – Secure similar pensions for similar careers 31 Pension recommendations
- 32. 32 Life expectancy is low Source : OECD (2018), "Health Status", OECD Health Statistics (database). Note: The OECD aggregate is calculated as an unweighted average of the data shown. Life expectancy at age 65 is calculated as the unweighted average of the life expectancy at age 65 of women and men. 10 14 18 22 26 LVA HUN LTU SVK TUR MEX CZE EST POL USA CHL DNK OECD DEU NLD IRL SVN PRT GBR ISL FIN AUT BEL GRC SWE NOR NZL KOR ISR CAN LUX AUS ITA CHE FRA ESP JPN Years Life expectancy at age 65
- 33. 33 Lifestyles impact negatively on health 0 5 10 15 20 25 30 35 40 45 Lowest (MEX) OECD HUN Highest (GRC) Lowest (TUR) OECD HUN Highest (LTU) Lowest (JPN) OECD HUN Highest (USA) Dailly smoking Alcohol consumption Adult obesity Among OECD countries, 2017 or nearest year available%
- 34. 34 Health care is highly hospital-centered 0 5 10 15 20 MEX TUR NLD DNK NOR AUS IRL SWE USA CHL BEL ISL GBR ISR SVN ESP GRC POL EST SVK OE… NZL PRT LVA LTU ITA CAN AUT FIN CHE FRA LUX DEU CZE HUN KOR B. Average length of stay in hospital In days3 2016 0 2 4 6 8 10 12 14 MEX CHL SWE CAN GBR DNK NZL TUR USA ESP ISR IRL ISL ITA PRT NLD NOR AUS FIN GRC SVN CHE OE… EST LUX BEL LVA SVK FRA POL LTU CZE HUN AUT DEU KOR JPN A. Hospital beds Per 1 000 population, 2017 or nearest year available2
- 35. 35 The shortages of health workers is especially severe in poor rural areas Unfilled GP practices/100 000 people
- 36. 36 Long-term care is under developed 0 1 2 3 4 5 6 GRC LVA POL PRT ESP HUN EST SVN SVK LTU DEU CZE LUX ITA FRA IRL DNK GBR AUT SWE BEL FIN NLD NOR A. Public expenditure on LTC by type of service As a percentage of GDP, 2015 or latest available Institution-based (health sector) Home-based (health sector) Social sector Source : European Commission (2018), "The 2018 Ageing Report - Economic & Budgetary Projections for the 28 EU Member States (2016-2070)", Directorate-General for Economic and Financial Affairs, Institutional Paper 079, Luxembourg.
- 37. • Reduce hospital stays by: – enhance outpatient care – concentrate inpatient care in fewer, better equipped and more specialised hospitals. • Increase hospitals’ autonomy and update the DRG tariffs to adjust supply in line with demand changes • Strengthen GPs’ gatekeeper and coordinator roles by increasing pay-for-performance financing • Further promote group practices for GPs • Integrate the various long-term care systems. • Use cash benefits and vouchers to improve access to home and institution-based long-term care 37 Health recommendations
- 38. 38 Environmental outcomes can be improved, particularly particles emissions 0 5 10 15 20 25 30 1999 2001 2003 2005 2007 2009 2011 2013 2015 Mean annual concentration of PM2.5 (µg/m³) OECD Hungary Source : OECD (2018), Green Growth Indicators (database). Particles emissions
- 39. • Use road tolls and car taxes that include vehicles’ environmental performance • Introduce congestion charges and strengthen public transport • Use fiscal incentives to replace inefficient and high-emission heating systems 39 Greening growth recommendations
- 40. 40 For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. http://www.oecd.org/eco/surveys/economic-survey-hungary.htm
Notas do Editor
- Until 2013, the economy was in a deep crisis. The following recovery started with EU driven investments, then exports and more recently more on private consumption The 5 year old recovery is maturing, implying that growth will increasingly rely on implementing structural reform
- Until 2013, the economy was in a deep crisis. The following recovery started with EU driven investments, then exports and more recently more on private consumption The 5 year old recovery is maturing, implying that growth will increasingly rely on implementing structural reform
- In addition, nearly all firms report problems with finding qualified workers. Looking ahead, population ageing implies a shirking labour force
- Improving well being will, among others, rely on creating better paid jobs, progress in educational outcomes, improve health and environmental outcomes. This survey offers recommendations in all these areas,
- The recent dip of consumer price inflation below 3% reflects base effects as higher energy prices fade out of the index. The acceleration in earnings partly reflects double-digit increases in minimum wages. In the coming years, these are set to increase by 8% per year. Together with emerging labour market bottlenecks, this means few signs of easing wage pressures.
- Ageing relating spending will increase steadily over the coming years, adding at least 3.2%-point to the public spending-to-GDP ratio by 2070
- The current fiscal stance has been loosened as the public deficit remains basically unchanged despite the strong recovery. An unchanged stance leads to an increasing debt path. If increases in ageing related spending are not offset, then public debt triple by 2070 Implementing the government’s long-term consolidation programme will save the day.
- The central bank has become more hawkish in its statements
- The pension system is PAYG and fully earnings-related. There are a number of flaws in the current system. We will look at three of them here.
- A lost decade of productivity growth! Welfare improvements (and income convergence) depend on bolstering productivity
- This figure reflects a very high import content in exports. More competitive domestically-owned sub-contractors could replace imports in exports, boosting the domestic value added component.
- Projects selection and implementation remain high centralised. Better identification of which projects are best for local development require greater local say and support. In the chapter we also call for greater co-financing and tax autonomy to improve project selection.
- The trend towards higher skill content in jobs reflects that it is higher value added production that links into global value chains and the expansion of business services
- The recovery has ensured increasing employment rates for females, low-skilled and older workers. However, not for mother with young children Kindergartens have become mandatory, but crèches remain underdeveloped. Total maternity leave can be up to 3 years. The other main source of underutilised labour resource is older workers, but there the increase in the statutory retirement age is boosting the effective retirement age
- The duration of UB is three months = insufficient time to find a job offer that match skills.
- The pension system is PAYG and fully earnings-related. There are a number of flaws in the current system. We will look at three of them here.
- The PAYG system means that there are no savings to finance future pension spending. If financed through higher social security contributions, then growth would be undermined. If downside risks materialise, such as
- Pensions are indexed to prices, rather than wages. As such, over time, the value of pensions relative to wages will fall, widening the gap. The poverty trap is especially a concern for low-wage earners, or those with career breaks, for instance because of late entry into the labour market, or periods with unemployment. Currently, many of those who were on the labour market during the economic transition face poverty.
- Pensions are indexed to prices => falling benefit ratios over time and thus increasing risk of old-age poverty. Wage indexation is very costly (3% of GDP).
- There is little reliance on price signals There are many general hospitals and few specialised ones to benefit from economics of scale and scope An additional problem is a high number of avoidable hospital admissions, implying that GPs play only a small role as gate keepers.
- Demand changes are arising from population ageing, which implies more older patients with different health needs. The reliance on family-based long-term care is not sustainable when ongoing urbanisation means larger geographical dispersion of families. Demand for institution based long-term care will grow with population ageing, so now is the time to implement measure to ensure a flexible, high quality and cost-efficient system
- The fall in CO2 emissions reflect to a large degree the closing of highly polluting heavy industries. The increase in particles emissions is the result of more road traffic (with imported used cars) and the high number of old wood stoves, where waste and other illegal products are used.