During the winter, Hungarians preferred to take short trips.Continue reading
Following the inflationary shock triggered by the Russian-Ukrainian war and EU sanctions, real wages rose significantly in 2024, giving new impetus to Hungarian household consumption. Although retail sales grew only moderately, spending on services, travel, and online purchases rose in greater terms. According to Eurostat data, Hungary became one of the countries with the highest consumption growth in the European Union, but the question is whether this trend can be sustained in the coming years, reads an opinion piece in Világgazdaság.
Following the inflation shock of 2022–2023, real wages fell and household consumption declined. However, as a result of disinflation and a substantial increase in the minimum wage, real wages rose by more than 9% in 2024, some of which was reflected in consumption. Household consumption expenditure grew by 5% in 2024, making Hungary one of the countries with the highest growth in the European Union, according to an article by Gergely Suppan, Deputy State Secretary for Macroeconomic Analysis.
For 2024 as a whole, retail trade grew by 2.6%, lagging behind the consumption and real wage growth described above. Detailed data clearly shows that retail sales excluding fuel sales grew by 3.2% in 2024, while food and food-related mixed stores grew by 3.8%. This suggests that
Hungarian households significantly increased their food purchases last year, while demand for durable consumer goods grew only moderately and demand for motor vehicle fuel declined compared to a year earlier.
According to statistics, the increase in consumption was mainly in the services sector. The consumption structure has been changing worldwide since the 2019 pandemic. After the reopening following the lockdown, people sought to make up for lost travel, service outlets were filled to capacity, and people began to spend more on experiences rather than goods. Moreover, economic development is also leading to a shift in consumption towards services.
This change is not only due to the impact of the pandemic, but also to other factors such as generational preferences and the rise of renting instead of ownership. The economic downturn of 2023, did not seem to slow down the service sector, although growth stalled for a few quarters, but with the rise in real wages, the sector regained momentum.
However, it is not only the domestic service sector that has benefited from the rise in real wages in Hungary. Data published by the Hungarian Central Statistical Office (KSH) on tourism shows that the number of multi-day trips abroad by Hungarians increased by 9.7% last year compared to 2023, while Hungarian spending abroad rose by 9.3%, and spending by foreigners in Hungary increased by 6.5%. In other words, part of the growth in household consumption expenditure was realized abroad and in connection with travel, but the number of foreigners visiting Hungary and the amount they spent in the country increased only to a lesser extent. This trend is likely to continue in the future, as Hungarian convergence and the associated rise in wage levels will make foreign travel increasingly affordable for more people.
Online shopping is also gaining ground in Hungarian consumption patterns.
According to statistics from the Hungarian Central Bank analyzing card transactions, the value of online purchases made with domestically issued bank cards increased by 20% in 2024, and the number of transactions jumped by 16%. The data shows that in-store consumption grew only moderately, while Hungarians spent significantly more on travel, services, and online orders than in previous years.
The growth in domestic consumption was primarily driven by rising real wages. If we look at inflation-adjusted (real) wages, Hungary has weathered the crises of recent years particularly well overall.
Based on Eurostat inflation and labor cost data, between 2020 and 2024, Hungary had one of the fewest quarters (five in total) when real wages declined, and as a result, cumulative real wages grew by slightly over 19 percent during the period under review.
During the same period, real wages in EU countries declined on average over ten quarters, falling by 1% overall by the end of the period under review.
Hungary has also performed exceptionally well compared to the other Visegrád Four countries in recent years, with purchasing power rising by 15% in Poland, 6% in Slovakia, and falling by almost 6% in the Czech Republic.
Overall, real wage growth in Hungary was the fourth fastest in the EU, refuting arguments that Hungarian households are becoming impoverished.
Rising wages have also led to a visible increase in savings. In Hungary, the net financial wealth of households as a percentage of GDP rose from 106.2% in 2019, to 109.7% in 2023, while the EU average fell by nearly three percentage points during the same period. Although Hungary’s GDP growth only moderately exceeded the EU average during the period under review, the trend may reverse in the coming years, as consumer confidence is likely to strengthen again among Hungarian households with the possible end of the Russian-Ukrainian war in the neighborhood. This could translate into higher consumption in the economy; however, as mentioned above, it is not certain that this will be reflected primarily in an increase in retail sales.
Following the curbing of inflation, the government’s main objectives have been to support families and stimulate economic growth. Consultations with employers have been held to lay the foundations for sustainable growth, resulting in a three-year wage agreement: minimum wages increased by 9% in 2024, and the increase will be a further 13% in 2025, and 14% in 2027. In parallel with this, the government aims to promote further significant increases in real wages by expanding family tax allowances, exempting mothers from personal income tax, and regulating retail margins and corporate price increases.
Via Világgazdaság, Featured photo via Pixabay
