OECD Economic Surveys: Hungary 2026

Executive summary

Key messages

To prepare for population ageing and climate change, Hungary needs to increase fiscal space and support long-term growth. Reforming the tax system, making the economy more resilient to climate risks, increasing opportunities for women and young people in the labour market, and supporting the development of domestic SMEs are possible strategies discussed in this Survey.

• Increasing fiscal space could be achieved through a mix of policies aiming at reforming pensions, improving public spending efficiency and broadening the tax base. Hungary should start by securing EU funds and cutting tax expenditure.

• Reducing emissions in the transport and residential sectors is key and would help improve energy security. Hungary also needs to adapt to rising climate risks by further improving insurance coverage in high-risk areas, land-use regulations and incentives for adaptation investment.

• Aligning family leave entitlements with international practices and raising early childcare supply would support fertility and women’s labour market participation in a cost-effective way. Improving youth labour prospects requires leaving no one behind at school and boosting higher education.

• SMEs would benefit from improved and more stable regulations, a full implementation of the public integrity framework, easier access to financing, and more targeted government support for investment. Developing human capital will be key to alleviate skill shortages and facilitate SME integration in GVCs.

Economic activity has been weak but is projected to progressively pick up

After a strong post-pandemic recovery, GDP growth abruptly declined in 2022 and has remained low since then. Growth is projected to progressively pick up from 2026, in part due to the weakening of the fiscal stance. After being sticky for a long period, core inflation has finally declined but wage growth remains elevated.

Economic activity has been subdued since 2022 (Figure 1). After a strong post-pandemic recovery driven by domestic demand, GDP growth abruptly turned down in the second half of 2022 and has remained low since then. Private consumption has been the main engine of growth since 2024, but corporate investment remains depressed due to low capacity utilisation, low business confidence, and trade policy uncertainty.

Inflation has receded. Inflation has significantly declined from the historically high level reached in 2023 and price regulations have largely shielded households from the recent energy price shock. Beyond imported commodity prices, labour costs have been the main domestic driver of inflation since 2023, and while core inflation excluding food and energy (OECD definition) has declined to 3.2% in June 2026, wage growth remains strong (Figure 1).

Figure 1. Inflation has declined amid weak economic activity, but wage growth remains strong

Note: In Panel A, data are based on real GDP in USD, using constant PPPs (reference year 2020). In Panel B, core prices refer to consumer price index excluding food and energy. Nominal wages refer to average gross earnings of full-time employees in the private sector.

Source: OECD and Hungarian Central Statistical Office

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Monetary policy remains cautious. Owing to inflation decline, the Central Bank has restarted to lower the policy rate after a long period where it kept it stable. The historically large negative output gap and the recent increase in the exchange rate provide some room for monetary easing. Nevertheless, monetary policy should be managed to ensure that inflation durably stays close to the 3% target and that inflation expectations are firmly anchored.

The fiscal stance is set to loosen in the near term. Setting aside business cycle developments and interest payments, fiscal consolidation has been significant since 2022 but fiscal policy is expected to become more accommodative from 2026, partly due to public wage increases and personal income tax (PIT) cuts.

Growth is projected to progressively pick up. Private consumption will be supported by strong real wage growth and PIT cuts in 2026. The expected release of EU funds will support public investment from the end of 2026 onwards. Exports are projected to pick up in line with a recovery in foreign demand, with no significant change in export market shares. The availability of new manufacturing capacity may provide a further boost to exports, but capacity utilisation is low and the potential of the manufacturing sector will be fully exploited only if external demand picks up significantly.

Table 1. Private consumption has been the main engine of GDP growth since 2024

Annual growth rates, %, unless specified

	2022	2023	2024	2025	2026	2027
Real GDP	4.2	-0.8	0.7	0.5	1.9	2.2
Private consumption	6.6	-2.2	7.3	3.1	5.3	3.8
Public consumption	2.7	3.9	-2.8	2.4	2.4	1.2
Investment	-1.0	-5.9	-8.6	-2.8	1.1	3.7
Exports	10.7	1.8	-0.5	-1.1	-0.7	2.3
Imports	10.8	-3.4	-1.4	1.2	4.5	3.7
Unemployment rate (% of labour force)	3.6	4.1	4.5	4.4	4.5	4.1
Inflation (CPI)	14.6	17.1	3.7	4.4	1.9	2.7
Government budget balance (% of GDP)	-6.2	-7.0	-5.1	-4.7	-6.7	-5.5
Government debt (Maastricht, % of GDP)	74.1	73.3	73.5	74.6	74.3	74.6

Source: Hungarian Central Statistical Office (KSH), OECD projections

Reforms are needed to safeguard public finances and support inclusive growth

Financing increasing ageing- and climate-related costs without endangering fiscal sustainability will require additional fiscal space. This could be achieved in the near term by cutting inefficient tax expenditures and streamlining subsidies, and in the medium term by reforming pensions and raising public spending efficiency.

Financing expenditure related to ageing and climate mitigation and adaptation will require additional fiscal space of around 8% of GDP by 2070 to ensure public debt sustainability. Increasing pension costs will be the main driver of ageing-related expenditure in the future (Figure 2). Given the structure of the tax system, population ageing is also expected to weigh on future tax revenues. Unlocking EU funds will be key to alleviate budget pressures and support public investment and Hungary’s development.

Reforming the public pension system will be key. Hungary’s pay-as-you-go pension system provides relatively generous benefits and a special scheme allows half of women to retire early. Linking the statutory retirement age and women’s eligibility to earlier retirement to life expectancy would make the pension system more sustainable while keeping the upward trend in the time spent in retirement. Capping the 13^th and 14^th months of pension benefits would also help buttress the pension system.

Spending efficiency should be improved by using spending reviews and cost-benefit analysis in public procurement more systematically. There is scope to raise efficiency in the health sector, improve infrastructure governance, and streamline poorly targeted subsidies, especially on housing, while continuing to phase out fossil-fuel subsidies.

Broadening the tax base and strengthening property and capital income taxation would raise additional revenues. Numerous tax expenditures are costly and regressive. There is scope to limit reduced VAT rates. Reducing the personal income tax (PIT) exemptions for mothers and reallocating part of the savings to expand early childcare would support fertility in a more cost-effective way. While they are among the least harmful to economic activity, recurrent taxes on immovable property are underused. Inheritance and health-related taxes also have untapped potential and would support social mobility and health outcomes. Finally, reducing the gap between the taxation of labour and capital would limit opportunities for tax arbitrage.

Structural tax reforms would support stronger growth and equity. The labour tax wedge for low-income earners is well above the OECD average due to the flat PIT. Ensuring PIT progressivity would strengthen incentives to work in the formal sector for young and low-skilled workers, and enhance the responsiveness of tax revenues to economic growth. It would also respond to public demand for a fairer tax system. Phasing out distortive turnover and sectoral profit taxes, as well as price and margin caps, would enhance efficiency and reduce tax uncertainty, which is detrimental to investment.

Figure 2. Ageing-related public expenditures are set to increase

Change in public expenditures between 2025 and 2070

Source: European Commission 2024 Ageing Report.

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Hungary needs to adapt to climate change while pursuing climate mitigation efforts

Hungary should accelerate efforts to reduce emissions in the transport and residential sectors for achieving climate neutrality by 2050. It should also adapt to rising climate risks related to floods, droughts, and extreme heat by improving insurance coverage, land-use regulations and incentives for private adaptation investment.

Decarbonisation needs to accelerate to meet GHG emission targets. After falling by 40% between 1990 and 2013, emissions have stagnated as transport and residential emissions have offset gains in energy and manufacturing sectors. Dependence on fossil fuel imports remains high, and electricity grid and storage deployment is not keeping pace with the rapid expansion of solar energy. Scaling up the supply of wind energy, lifting grid constraints, increasing fuel excise taxes or introducing a carbon tax, and moving from energy price caps to targeted cash transfers would help get back on track to meet the 2050 emission targets.

Economic costs related to recurrent flooding and droughts are high and rising. Average costs related to climate change amounted to over 0.1% of GDP annually in the last decades (Figure 3, Panel A) and climate scenarios point to rising agricultural losses and infrastructure disruptions. Hungary may be one of the European countries most affected by river floods and severe droughts in the future.

Low insurance coverage of high-risk properties and weak land-use regulations amplify the economic impact of climate risks. While overall insurance coverage is high, only a small share of climate-related losses is insured (Figure 3, Panel B), reflecting a high concentration of risks in non-insured properties. Making flood insurance compulsory for all properties while introducing a government-backed reinsurance mechanism would ensure risk pooling and keep insurance premia affordable. The resilience of households and firms to natural disasters would be further enhanced by integrating geolocalised risk information into local planning, providing targeted public support for relocating people living in high-risk areas, and strictly enforcing land-use regulations.

Scaling up both public and private adaptation investments is essential. Hungary lags many OECD countries in business-led adaptation. Encouraging private investments using insurance pricing and targeted public support, and ensuring stable financing for critical public assets will be key. Mainstreaming adaptation in fiscal planning would reinforce Hungary’s capacity to cope with future climate shocks and enhance long-term resilience. Investments in the health system would also help reduce mortality during heat waves.

Figure 3. Economic losses from natural disasters are high while insurance compensation is low

Note: In Panel A, economic losses in constant 2024 prices are cumulated over 1980-2024 and divided by 2024 GDP.

Source: European Environment Agency -- Risk Layer CATDAT dataset; Eurostat; Swiss Re -- Sigma (database), all rights reserved.

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Population ageing calls for a better labour market integration of women and young people

Higher employment of women would help offset the decline in working-age population, while better-educated young people would foster productivity growth. This would require aligning family leave entitlements with international practices, raising early childcare and long-term care supply, and leaving no one behind at school.

Long family leave entitlements keep women away from work for a long time after childbirth, which is costly for their career. While the employment gap between men and women has declined, international official statistics count as employed all people who are on paid leave. This does not reflect the long career interruptions of Hungarian women after childbirth. The gender wage gap has risen over the last 20 years to reach 14% in 2024, 4pp above the OECD average. This gap is mostly related to childbearing and persists until the end of women’s professional life. Recently granted PIT exemptions for mothers with two or more children are costly for public finances and do not address the root causes of women’s labour market challenges.

Hungarian social norms about gender roles are among the most conservative in Europe and might hurt women’s labour outcomes. Incentivising a minimum percentage of women on publicly-listed company boards and among election candidates, and granting fathers longer non-transferable paternity leaves would help rebalance gender roles.

Despite significant recent progress, early childcare and long-term care supply remains limited. Close to 80% of Hungarian children below three are not enrolled in formal childcare, well above the EU average and despite relatively low costs. The fact that half of Hungarian children below three live in districts where nursery places are available for less than a fourth of them contributes to this outcome. Further expanding the supply of childcare could be financed by reallocating part of the recent PIT exemptions for mothers. Formal long-term care will also need to expand from a low base. Otherwise, population ageing may further raise the burden on women.

Stalling educational attainment hampers the labour market prospects of young people. Young people entering the labour market are not better educated on average than the previous generation and the share of tertiary educated workers in Hungary is now one of the lowest in the OECD (Figure 4). This hampers Hungary’s prospects for productivity growth and exposes young people to the risk of automation, which is highest in Hungary among OECD countries.

Leaving no one behind at school will be essential to raise the overall education level. In Hungary, socio-economic backgrounds have a stronger influence on educational attainments than in most OECD countries. Policies to promote higher education should address issues appearing early in life. School segregation is high, from an early age. There is room to improve academic performance by reducing class sizes in disadvantaged primary schools and providing additional tutoring to limit grade repetition.

Figure 4. Educational attainment has stalled

Share of population with tertiary education, 2024 or latest available year

Source: OECD (2025), Adults' educational attainment distribution, by age group and gender (database).

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Enhancing opportunities for small and medium enterprises would boost growth prospects

SMEs would benefit from improved and more stable regulations, easier access to financing, and more targeted government support for investment towards R&D and smaller firms. Developing human capital, including by lifting barriers to adult learning, would facilitate SME integration in GVCs and help reap the benefits of FDIs.

Labour productivity in Hungary is lagging behind OECD peers, and the gap between SMEs and large firms is wider than elsewhere. SMEs in Hungary are relatively small and contribute to only 54% of value added (Figure 5). The labour productivity gap between SMEs and large firms is especially wide in the manufacturing sector.

Insolvency and product-market regulations (PMRs) should become less restrictive. Over the last 20 years, concentration and markups have risen faster in Hungary than elsewhere in Europe. Business creations in Hungary are also lower. Relaxing PMRs, which are more stringent than the OECD average, would help increase competition and foster small business creation and growth. Key areas for improvement include administrative requirements for starting new businesses and regulatory barriers in the professional and retail sectors. To facilitate the restructuring of weak firms and contribute to a more efficient allocation of capital, Hungary’s insolvency framework could be further improved by allowing creditors to initiate debt restructuring, introducing simplified insolvency procedures for SMEs, and reducing the time of discharge for failed entrepreneurs.

Regulatory uncertainty is harmful for SMEs. The rapid increase in the number of decrees makes it difficult for firms, especially SMEs with limited legal expertise, to keep up with existing regulations. Uncertainty is aggravated by limited stakeholder involvement in the regulatory process.

The Integrity Authority has recently received expanded powers to fight corruption. Fully implementing the public integrity framework, and providing adequate resources, will be key to support the business environment and maintain trust in institutions.

Improving the information on the creditworthiness of firms would alleviate SMEs’ financial constraints. Online access to the credit registry is currently impossible and updating procedures are lengthy. Moreover, the information in the registry is limited to bank credit and does not include anything on the timeliness of rental and tax payments, and payments to suppliers and utility companies. To support non-bank capital financing, the government could also reduce the debt bias in corporate income taxation and co-invest with private partners in venture capital funds.

Government support to investment should be more targeted towards small innovative firms. The share of subsidised loans to SMEs has nearly tripled since the pandemic and a third of firms also receive public grants. To limit the risk that public funds are allocated to firms that would invest anyway and increase the efficiency of public investment support, it should focus on R&D and smaller firms.

Figure 5. Hungarian SMEs tend to be small and contribute little to value added

Source: Eurostat (structural business statistics)

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The large stock of Foreign Direct Investment (FDI) generates only limited spillovers for Hungary. Foreign-owned firms produce 80% of Hungarian exports of goods, but only 41% of domestic value added is embedded in manufacturing exports because foreign-owned firms source most of their inputs from abroad.

Increasing the absorptive capacity of the economy is essential to fully reap the benefits of FDI. Domestic businesses finance a relatively small share of higher education expenditure on R&D. Business-science linkages could be strengthened by extending performance contracts between the government and universities by which public funding is linked to innovation activity, the number of STEM students, and revenues raised from the private sector.

Beyond initial education, lifelong learning is key to support skill development. 35% of Hungarian firms report an inadequately educated workforce as their biggest obstacle, and recruiting talents is especially difficult for SMEs. Management practices in SMEs are also below international standards. Such skill issues hinder the participation of domestic firms in the value chain of more productive foreign firms. Beyond improving initial education, the government could promote lifelong learning, notably by encouraging the use of training leaves, undertaking a pilot implementation of individual learning accounts, and supporting the expansion of SME training networks.

 

MAIN FINDINGS	KEY RECOMMENDATIONS
Macroeconomic developments and policy challenges
Wage growth remains strong and the anchoring of inflation expectations has weakened during the high-inflation period.	Manage monetary policy to ensure that inflation durably stays close to 3% and that expectations are firmly anchored.
Debt servicing costs are relatively high and sovereign credit rating is low. Blocked EU funds and Inefficient tax expenditures and subsidies (especially on fossil fuels and housing) limit fiscal space. Without further fiscal consolidation, long-term fiscal sustainability is at risk.	To prepare for higher ageing- and climate-related costs in the future, take steps towards fiscal consolidation in the near term and put public debt on a sustainably declining path in the medium and longer term.
Pension-related expenditures are expected to increase by 4.4% of GDP by 2070. Eligibility criteria to retire, notably for women, are not linked to life expectancy and pensioners receive extra months of pension benefits.	Strengthen the financial sustainability of the pension system, for example by linking the retirement age to life expectancy and capping the 13th and 14th months of pension benefits.
Reduced VAT rates and personal (PIT) and corporate income tax (CIT) expenditures are costly, less efficient than well-targeted spending support, and disproportionately benefit higher-income households. Empirical evidence shows that family tax incentives only have a modest and temporary impact on fertility	Evaluate VAT, PIT and CIT expenditures and phase out inefficient ones.
Infrastructure governance is relatively weak. Formal cost-benefit analysis is insufficiently used for public infrastructure investments.	Systematically rely on cost-benefit analysis and ensure transparency in public procurement.
While being among the least detrimental to economic activity, recurrent taxes on immovable property are underused and only raise 0.4% of GDP in fiscal revenues.	Link the tax base to regularly updated valuations of properties and introduce a minimum local tax rate.
While inequalities are below the OECD average, the flat PIT system limits the responsiveness of tax revenues to GDP growth and weakens work incentives by maintaining a relatively high labour tax wedge for low-income earners not covered by targeted work incentives.	Make the PIT schedule progressive in a revenue-neutral way.
Adapting to climate change while pursuing mitigation efforts
Carbon prices in the transport sector are among the lowest in the OECD.	Reduce fossil fuel subsidies, while increasing fuel excise taxes or implementing a carbon tax on CO₂ emissions in transport. Redistribute the additional revenues back to households.
Natural gas prices for households are the lowest in Europe. This lowers incentives for residential renovation and exposes public finances to fluctuations in global energy prices.	Continue restructuring energy support by moving from price caps to targeted transfers to support vulnerable households.
Land-use regulations are not adequately enforced in protected floodplain areas, and they do not sufficiently account for climate-related risks.	Ensure that all municipalities have regularly updated risk-prevention plans and strengthen the enforcement of land-use regulations.
Due to insufficient insurance coverage in high-risk areas, the share of insured losses is low after natural disasters and the government has to step in.	Make flood insurance compulsory for all properties while introducing a government-backed reinsurance mechanism and creating a dedicated natural disaster relief fund.
Addressing the labour-market challenges faced by women and young people
Long family leave entitlements keep women away from the labour market for a long time after childbirth, which is costly for their career. The non-transferable paternity leave is very short by international standards.	Align the effective length of family leave entitlements with international practices, for both men and women.
Less than 20% of children below three are enrolled in formal childcare. Even though childcare provision allows parents resuming work after childbirth and limits the impact of socio-economic backgrounds on education, supply is limited in many districts.	Continue expanding the number of childcare places for young children.
Educational attainments are stalling and closely related to the socio-economic background of students. School segregation is high, class sizes in primary education are above the OECD average, and teacher recruitment difficulties are high in disadvantaged schools.	Lower class sizes in disadvantaged primary schools and provide additional tutoring to avoid grade repetition.
Enhancing opportunities for SMEs
The number of administrative procedures and the minimum capital requirement to create businesses are high in international comparison.	Set up a website to accomplish all procedures to create a business and reduce the minimum capital requirement to start a limited liability company.
The Hungarian insolvency framework could be improved to facilitate business restructuring and free up capital for productive firms.	The insolvency law should allow creditors to initiate debt restructuring, reduce the time of discharge for failed entrepreneurs, and introduce simplified insolvency procedures for SMEs.
A recent law has significantly expanded the capacity of the Integrity Authority to verify asset declarations.	Take the necessary steps, including on resources, to implement and fully enforce the new amended legislation on the Integrity Authority.
Collateral constraints are relatively prevalent in Hungary. The credit registry cannot be accessed online, it does not include any information beyond bank credit, and updating procedures are lengthy.	Facilitate credit registry access and update, and include information on cross-border credit, and on the timeliness of rental, commercial and tax payments.
Empirical evidence shows that investment support is more likely to boost innovation and productivity if it focuses on R&D and smaller firms.	Refocus investment support towards R&D and smaller firms.