OECD Economic Surveys January 2014 - Hungary [antikvár]

EXECUTIVE SUMMARY Main findings Hungary has exited from recession in early 2013, but the recovery will be modest. Growth potential is held back by weak investment, low employment among low-skilled workers and shortcomings in labour and product markets, making further structural reforms essential. Meagre growth and its causes harm well-being in ways that go beyond GDP per capita and concern income inequalities and the scope for social mobility. Access to international bond markets has improved significantly, but the still high foreign currency indebtedness remains a key vulnerability. Monetary policy and financial stability. Monetary easing has helped the return to growth. Successive cuts in the policy rate to historical lows have been largely transmitted to rates on new loans. The Funding for Growth Scheme, which is being extended, has provided banks with free refinancing for SME lending. Despite strong take-up, it is still unclear whether the Scheme is creating new lending or displacing other credit. Lending remains hampered by poor bank profitability and high non-performing loans. Foreign-currency mortgage rehef schemes have begun to address high foreign-currency indebtedness. Fiscal policy. Maintaining fiscal discipline will be important to preserve market access and put public debt on a durably declining path. A number of special taxes introduced over recent years have helped bring the budget deficit below 3% of GDP, but have begun to undermine the predictability and simplicity of the tax system. In particular, the tax on banks' balance sheets is likely to have reduced lending incentives. The fiscal framework will be reinforced by the introduction of medium-term budgeting. The mandate of the fiscal council is relatively narrow and it has a potentially very powerful veto over budget laws. Coinpetition and the business environment. Enhancing competition and the business environment is key to stronger investment and productivity. Despite recent simplification efforts, as part of an overall strategy to improve the business environment, high administrative burdens persist and regulatory instability has worsened, partly due to poor consultation and weak impact assessment mechanisms. Competition enforcement has been weakened in some respects. Perceptions of institutional quality, including the maintenance of appropriate checks and balances, have deteriorated, which may deter investment. Barriers to entry have limited competition in retail, professional services and telecommunications, hampering productivity both within sectors and in downstream industries. Government interventions in regulated energy prices, with industry cross-subsidising households, have hurt competitiveness and the environment. Labour market and mobility. Employment is hampered by skills mismatches and low mobility. Low-skilled labour supply greatly exceeds demand, especially in disadvantaged regions, notably because of high labour costs, despite recent targeted cuts in social contributions. The public works programme has increased employment, but has a poor record in reintegrating the non-employed to regular work. EU co-financed activation policies were upscaled, but the short duration of unemployment benefits and limited capacity of the Public Employment Service inhibit good labour matching. Education outcomes are relatively good on average, but the poor performance of disadvantaged students, notably Roma, limits their employment prospects and social mobility. Generalised homeownership, which is still encouraged by generous mortgage interest subsidies and very low recurrent property taxes, and relatively high public transport costs are obstacles to mobility.