A Concluding Statement describing the preliminary findings of IMF after an official staff visit finds that Hungary’s economic growth rate is exceptional, with an impressive speed of income convergence to advanced economy levels. However, due to the unpredictable global economic environment, the staff also points out some concrete steps required to maintain the momentum.
As part of regular consultations under Article IV of the IMF’s Articles of Agreement, an International Monetary Fund staff team visited Hungary from September 24th to October 3rd.
The delegation concludes in its statement that Hungary’s economic growth has continued to exceed expectations even amidst an uncertain and increasingly difficult global economic environment, registering one of the highest rates in Europe in 2018.
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The statement also notes that Hungarian income levels are catching up to advanced economies at an “impressive” pace. According to the IMF, wages are growing rapidly, while unemployment is declining to historically low levels. The Monetary Fund also points out that coordinated structural reforms aimed at improving competitiveness are needed to counter the possible slowdown in growth.
However, these short-term prospects are overshadowed by wavering global growth, global trade tensions, and the uncertainties of Brexit. IMF also warns, due to a positive output gap, Hungary’s growth is very likely to decelerate unless structural reform efforts are redoubled to improve productivity and boost potential output.
In its report the IMF endorses the government’s “Program for a More Competitive Hungary” and the Central Bank’s extensive agenda to improve competitiveness especially of small and medium-sized enterprises (SMEs).
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The Monetary Fund experts say it is also time to introduce reforms that can address known barriers to businesses, which are essential to further improve competitiveness:
- administrative processes should be further simplified and shortened
- enhancing governance and public procurement practices would also be necessary
- supporting the growth and development of SMEs regulations should be simplified and streamlined as well as changing them less frequently.
Given the recent moderation of inflation, uncertain global growth conditions, and the resumption of monetary easing by the European Central Bank, the IMF considers it appropriate to maintain an accommodative monetary stance.
Regarding the macroprudential policies, the delegation noted that it helped to preserve financial stability and limit the risk of a credit-fueled housing boom.
The delegation found the banking system, on average, well-capitalized, profitable, and liquid. The loan quality of banks has continued to further improve.
According to the IMF, the most important tools to help lower the relatively high bank intermediation costs are digitalization, optimization of the branch network, financial deepening to improve cost efficiency, and predictable contract enforcement.
Featured photo via Facebook/imf