Unemployment eases in Hungary, likely to limit wage increases

The Hungarian economy witnessed a decrease in the unemployment rate during the period between March to May. However, tightening of the labor market hints at limited wage growth in the near term.

The unemployment rate in Hungary is down to 5.5 percent in comparison with 5.8 percent in April and 7.1 percent a year ago. The number of employed people increased by 149 thousand in a year's time from which 116 thousand more people works on the domestic primary labor market.

Further, the public forced work program absorbed 25 thousand more people, while there are eight thousand more workers abroad in the age group between 15 and 74 years. The activity rate went up to 60.8 percent, 0.1 percent point higher compared to previous month and 1.3 percent point higher than a year ago.

Meanwhile, the tight labor market may keep wage increase at high level (around 6-7 percent y/y), so the domestic consumption may remain strong in the coming two years and it may give a stabile base for Hungarian economic growth.

"Despite the Brexit vote we expect that the Hungarian GDP may increase around 3 percent y/y in 2017 as the government may introduce some fiscal loosening during the autumn," KBC Market Research said in a recent report.

Although there is still room to further increase the participation rate of the population, businesses may find it difficult to absorb new workers from Hungary and it might be a longer process as the currently inactive people skills are out of date, which could be solved only with education, the report added.