Hungary EcoMin presents government's new economic action plan

There is a housing crisis in Hungary, and the banking system can help by providing something that will help to achieve economic goals, Minister of National Economy Márton Nagy began his presentation at the Portfolio Budapest Economic Forum conference. It's very clear that the Hungarian banking system is very stable, because it lends, it puts its money where it is needed. He said that the economic policy action plan is based on 3 pillars:

• affordable housing,
• increasing the purchasing power of incomes (in real terms, he added),
• and the Demján Sándor programme to help businesses.

Márton Nagy then began his presentation with the general state of the economy. Growth this year could be around 1.5%, but probably lower. Third-quarter GDP will not be as good as the market expects: the government estimates it very close to 0. In August, retail sales surged, but industry is weak. The main driver of retail is food, which is already growing strongly. Consumption is very strong in Hungary, Márton Nagy said. According to the minister, the domestic economy has already recovered:

The internal conjuncture is there, check.

He added that the external environment does not depend on the government, the country's external embeddedness is very strong. The government sees more and more chaos in Germany, it would be good if their economy would grow, but it is expected to fall minimally this year, but growth might return next year.

Next year, the government expects growth to be between 3% and 6%, according to Márton Nagy. In the first quarter of 2025, the annual growth rate could be as high as 3.3%, from there GDP growth will be between 3% and 4%, and by the end of 2026 it could be above 4%.

We defeated inflation, it went down, it stayed down. I let it go a long time ago, inflation is nothing to fear now,

He added that inflation is "always below expectations, it's always a surprise to us. [...] The central bank is also stuck in inflation fears, but now that doesn't seem to be a problem."

Meanwhile, the government expects inflation to remain around 3% in the coming years. The minister cites market forecasts, which average 3.7% annual average inflation in 2024 and 3.2% in 2025.

Márton Nagy also discussed investment, which has fallen at a higher rate than consumption, but the investment-to-GDP ratio will still exceed the EU average in the first half of 2024. He said it is important that consumption has started to recover and that the internal cyclical issues have been sorted out. Investment is a problem, but if the external economy is weak, it will hold back investment. With the improvement in the domestic economy, there is already an improvement in investment, and with many new factories entering the economy next year, we can expect an upturn in investment next year.

The government's estimate for economic growth is a conservative one and the actual results could be higher, Nagy said.

The minister also referred to the balance indicators. He expects the current account balance to be in surplus in the coming years, while the budget deficit is projected to fall to between 2% and 3% of GDP by 2027, from above 4% in 2024.

We focus on the budget,

he summed up, adding that the external balance is in order.

The economic policy's new goals

Márton Nagy also spoke about the economic policy goals so far, from 2000 to 2024. On the previous targets, he said that the targets have been largely met, Hungary has a very strong work-based society, we cannot promise a million new jobs. You can't make big promises on jobs because you can't go any further.

Airbnb moratorium coming to Budapest

As for the 2024 targets, he mentioned economic neutrality, the achievement of 3-6% growth, and the goals for the coming years are affordable housing, which requires 150,000 homes to be built in Hungary in five years (i.e. 25,000 per year). Affordable prices per m², which in the case of Budapest means a price per m² of HUF 1 million, and housing loan interest rates should return to below 5%. Not only in Budapest, but also in Debrecen, it takes 12 years to buy a 75 m² apartment. Housing prices in Budapest have gone completely out of control, there is no example of this internationally.

If a young person wants to rent an apartment, they have to pay more than 50% of their salary, somewhere around 60% of it. "The biggest overhead is not electricity or gas, but paying the rent," he said. According to the OECD, if the ratio of rent to monthly income is above 30%, it's a housing crisis, above 40% is critical. In Budapest, it is much higher and so there is a housing crisis.

Housing prices are out of control and there is nothing we can do to stop it at the moment.

In Budapest there are 800,000 households (not people) of which 140,000 are in long-term rentals, 18% of the population is in the rental market. This figure is very high by international standards, said Márton Nagy. The government sees this because of the personal income tax return, which cannot take into account black spending, so it is actually much higher than that.

The municipalities have done nothing so far, they had the means to take action against Airbnb, but they have not. The government should intervene in the housing market in Budapest, which should not be its task.

In Budapest, the government will not issue a licence for new Airbnb for two years.

In addition, the government is planning a significant tax increase in this area.

Wage policy

To increase wages, it is important to have economic growth, only then can this objective be met. The minister has repeatedly stressed the importance of this

In addition, the minister mentioned the target of an average gross salary of HUF 1 million by 2028 and a minimum wage of €1,000.

He stressed that this requires the GDP growth target to be met, and spoke of average gross earnings, not regular average wages.

The decline in real wages has been a very difficult period, and now we have a real wage increase of around 10%, which is unsustainable, and in the future we could have a real wage increase of around 5%. Companies are raising minimum wages to 50% of regular average gross earnings. A minimum wage of €1,000 in 2028 is entirely realistic and does not require a major effort.

Raising the average gross wage to HUF 1 million by 2028 is a more difficult task, but a wage increase of 9-10% can be achieved, but only if there is economic growth and productivity growth. The figures presented in the chart below show that the cabinet plans the minimum wage to be raised 12% and the wage minimum for skilled workers by 10% every year until 2030, while expecting a 10.5% annual increase in the gross average wage.

Márton Nagy outlined the undertakings required. He mentioned that the details of the workers' loan are being finalised. The maximum loan amount will be HUF 4 million at 0% interest, he said. The question is whether the 17-22 age group is appropriate, so whether this should be narrowed or widened.

Measures to help businesses

We have a terribly fragmented corporate structure,

said Márton Nagy, adding that "if we want to achieve broad-based growth, we have to do something with the micro segment." The capitalisation of 20% of SMEs is critical and therefore not even creditworthy. In certain sectors (construction, trade, manufacturing) this needs to be addressed.

The government's programme will also address businesses: the aim of the Demján Sándor Programme is to double the average size of domestic SMEs, to double the share of domestic SMEs in total exports, and to double digitisation and credit penetration.

The Growth Bond Programme (NKP) and the Growth Loan Programme (NHP) will expire. Not only do we need to be prepared to help SMEs, but there is also a maturity problem that needs to be addressed, primarily by the central bank.

The government is launching an SME financing programme, with a 30% capital injection from the Hungarian Chamber of Commerce and Industry (MKIK) and KAVOSZ for companies to spend on asset investments. There will be an EKD programme with 50% grant intensity. Digitalisation of companies should be supported.

If you don't have internet access, you don't exist,

he said. The digital reach of companies will also be increased and Eximbank will launch export promotion programmes. The Széchenyi Card Programme will be spinning at an investment loan rate of 3.5%.

The government will be in constant cooperation with banks and companies.

Without the corporate sector and the banking system, there can be no successful economy and economic growth,

Márton Nagy concluded.

Cover photo: Portfolio