Economy 14 November 2023, 2:29pm

Wage agreement seen around the corner in Hungary with key data published

Portfolio

So far, the stumbling block to the minimum wage deal has been the lack of third quarter GDP data. But on Tuesday morning, positive figures have been published on the Hungarian economy's performance, so a deal could be reached at Thursday's meeting of the Permanent Consultative Forum of the Private Sector and the Government (VKF).

Favourable GDP data were released on Tuesday morning. GDP grew by 0.9% between July and September compared to the previous quarter, while the economy's performance declined by 0.3% compared to the same period last year.

It gives rise to cautious optimism that the Hungarian economy has emerged from recession,

László Perlusz, secretary general of the National Association of Entrepreneurs and Employers (VOSZ), told Portfolio. According to him, we are seeing positive developments in both economic performance and inflation. "However, for the year as a whole, there will certainly be a recession," Perlusz stressed. This is due to the fact that the first three quarters of the year saw a contraction of 1.2%, to which the fourth quarter could be only a beauty patch.

After the GDP data, Economic Development Minister Márton Nagy also stressed the importance of the wage agreement. "Negotiations on next year's minimum wage and guaranteed wage minimum will continue this week between employers and employees, and there is a good chance that the minimum wage will be raised as early as December this year, with the increase reaching 15 and 10 percent respectively, thus boosting demand and consumption," the ministry said in a statement.

The government's objective is to [...] support dynamic wage growth so that real wages can increase by 4-5% next year, which can also contribute to consumption growth,

stressed Nagy. With inflation projected to be around 6% in 2024, a double-digit wage increase will be needed to raise real wages by 4-5% in real terms.

For all these reasons, the government is unlikely to want to see increases of less than 10% or 15% for minimum wages.

According to Portfolio, so far there have been some organisations on both the employer and employee side that have indicated their concerns about the emerging agreement. The National Association of Employers and Industrialists (MGYOSZ) reportedly wants a slightly lower increase in the wage floor, while the Hungarian Trade Union Confederation (MSZSZ) has thrown in a new idea of a higher wage increase.

In the context of an agreement in the making, it is a joke to come up with completely new ideas at this stage of the negotiations,

a source with information on the VKF meetings told Portoflio. So there will certainly not be a bigger wage increase than 10 or 15%, despite the wishes of one of the workers' representatives, but the chances of a smaller one are slim.

If there was no real wage growth, what would be the source of economic growth? This question has already been put by the government representative to some members of the VKF,

a source speaking on condition of anonymity told Portfolio.

Imre Palkovics, President of the National Association of Workers' Councils, said that the positive GDP data will definitely help the agreement. "The argument on which one employers' organisation based its demand for a smaller wage increase has been refuted. The recession is over," Palkovics stressed.

Ferenc Rolek, Vice-President of the National Confederation of Employers and Industrialists, told Portfolio that he sees the GDP data as a positive sign, which will help negotiations. He said that the MGYOSZ will formulate its position for the VKF meeting in light of this.

"Minimum wages must not fall below the subsistence level. This must be prevented," stressed Imre Palkovics. "If there is no increase in wages, consumption will not grow either", he argued in favour of bringing forward the minimum wage increase to December. László Perlusz said that he also believes that an agreement should be reached this week if wages are to be raised from the last month of this year. "VOSZ has not been and will not be an obstacle to a deal," he stressed.

He acknowledged the need to raise wages substantially to restore economic growth, but also drew attention to competitiveness issues. "If we raise wages too much, many less competitive Hungarian businesses that are capable of growth would throw in the towel. In addition, we would also overheat the economy, creating new uncertainty and risks," Perlusz summed up the situation, pointing out that inflation risks have not yet disappeared.