The View 9

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FURTHER INCREASE IN EMPLOYMENT AND WAGES On the back of strong economic growth, the employment rate increased above 70% in 2019, the highest on record. The unemployment rate continues to be one of the lowest in the EU, seeming to have hit the lowest point in the cycle at 3.3% as of Q2 last year. The labor market is likely to soften a bit and unemployment will hover around this level or tick up slightly in 2020. Part of the low-skilled workforce previously engaged in public workfare schemes managed to find jobs in the private sector. Also, the reduction of public administration jobs is releasing workforce to the private sector. Further, immigration had a positive impact on the workforce balance as Hungary has seen the sharpest rise in the number of approved labor visas in the EU - although this is still at a relatively modest level. The unemployment rate in Budapest remains still critically low at 1-1.5%.

Companies are still not seeing a significant moderation in the growth rate of wages and salaries. In fact, the latest figures suggest that due to increased premiums and other benefits, the nominal gross wage surpassed 400,000 HUF in November 2019 for the first time on record. This figure shows an increase of 14% y/y and represents a real wage growth of close to 8% in aggregate. This was the third year when nominal wages increased by a double-digit rate indicating the purchase power of Hungarian households also improved significantly. According to GfK, the per capita purchase power reached 7,400 EUR in 2019, 50% above its level in 2014. Nevertheless, wage and purchase power growth increases are much more moderate in EUR terms given HUF has depreciated by ca. 6% over the year. The average Hungarian gross salary is still under EUR 1,200. Wages remain under pressure not only due to the tense labor market but more increasingly because of the higher inflation rate.