Analysts startled by the slow pace of wage growth in Hungary

After the positive surprise in April, the May earnings statistics levelled out the overall picture. According to the latest data released by Hungarian Central Statistical Office (KSH), the pace of wage growth slowed significantly in May 2025. After a surprisingly strong April, the market consensus had rather expected a continuation of dynamic growth. In comparison, the data was much weaker.

Average earnings growth rate of 7.8% on an annual basis weaker than even the most pessimistic forecast,

wrote Péter Virovácz, Chief Economist at ING Bank.

More importantly for the real economy, the trend slowdown in wage growth has been accompanied by still high inflation, which has kept the change in the purchasing power of wages low.

In May, the real value of average net wages rose by 3.2% year-on-year.

This is broadly in line with the historical average, so it is not a problem in itself. However, the change in real earnings resulting from the combination of high inflation and high nominal wage growth is not desirable in the long run. Compared with the double-digit growth in purchasing power between end-2023 and end-2024, this is a slowdown of the kind that is likely to make consumers feel a relative deterioration in their financial position, even if what is actually happening is that the rise in the purchasing power of disposable income has normalised, Péter Virovácz explained.

Looking at the May data in more detail, it can be seen that employers may have been more cautious with bonuses, as regular earnings grew more dynamically than average wages, which include premiums, bonuses and monthly extra allowances.

• At sectoral level, the only area where wage dynamics accelerated was in the public sector (due to the earnings surplus of public administration and defence workers).
• In contrast, the non-profit and business sectors both saw a decline in the wage index compared to the April outlier.
• In the business sector, the 7.4% average wage growth presented itself in a rather mixed picture.
• Focusing on the key indices, wage growth slowed to below 6% in manufacturing as wage agreements expired from the previous year, but earnings growth in industry as a whole also slowed to a pace not seen since 2021.
• There has also been a marked slowdown in the transport and storage sector, meaning that the persistently weak industrial performance is now reflected in the wage statistics for the sector and closely its related areas.
• In addition, the slowdown is also marked in the financial sector, with slow wage outflows also not seen since 2021.

"As for this year as a whole, looking at April and May together, the overall picture has not changed much from what we thought when looking at the first quarter data. Overall, we expect average wage growth of around 8% for the national economy as a whole in 2025," Virovácz says. Downside risks are that business confidence indices remain weak, companies are taking increasingly tough stances in the wage negotiations that may still be ongoing in industry and there is more of an easing in labour market tensions in general. This could lead to a further slowdown in wage dynamics.

With average inflation expected to be 4.6% this year, the rate of real wage growth for the year as a whole could be around 3.2%, so it will slow back to the historical average,

the ING analyst stressed.

Thus, the big question this year is whether consumer confidence will be able to recover in a situation where the perceived change in relative financial conditions is weaker than it has been in the past year or two. For the time being, the answer is more likely to be no, as the household confidence index has fallen to a near one-and-a-half-year low in the past two months.

So far, the string of government interventions, far from improving consumer confidence, seem to have made economic agents even more hesitant,

said Virovácz.

"If this weak confidence persists, the dominant process will be the further accumulation of savings and the reinvestment of existing savings. And the lack of a pick-up in the consumption rate is a clear downside risk to the current forecast of economic growth of around 1% this year," the analysis concluded.

According to Gábor Regős, Chief Economist of Gránit Fund Management, the slowdown in wage growth is mainly due to two factors: on the one hand, we have only just reached the level of the typical wage increase expected this year, as not all companies will raise wages in January, some will do so later, and

it will take several months to move from last year's exceptionally high average wage increase of around 13% to the new equilibrium of around 8%.

On the other hand, labour market tensions are clearly diminishing, with the problems of industry increasingly spilling over into the labour market.

However, this is only partly reflected in the employment statistics released today, because although the number of employees fell by nearly 13,000 in May, this is a correction of the previous month's increase, we are back to March levels and 22,000 more than a year earlier - of course, some of these are third-country workers.

Today's figure also highlights the importance of the rate of increase in the guaranteed wage minimum, which affects many more workers than the minimum wage, roughly three times as many, and therefore has a greater impact on average wages. The effect of the minimum wage is more that people talk about it more, it is more visible, but in practice it is perhaps less relevant - which is precisely why it matters how much the guaranteed wage minimum is raised next year, as it will largely determine the increase in average earnings and hence the growth in consumption.

In the longer term, it would be advisable to raise real earnings to a higher level than at present,

said Gábor Regős.

There are four basic conditions for this: increasing labour market tightness, boosting economic growth, reducing inflation and raising the guaranteed minimum wage. Regős expects average wage growth this year to be broadly in line with the first 5 months of 9%, only slightly below.

The average wage increase next year will probably be slightly higher than that, but the question is how much the economy can recover, whether there will be a meaningful increase in the minimum wage, and how much the government will raise wages for its own employees, he added.

Cover photo (for illustration purposes only): Getty Images