On the back of low inflation, real wages grew 7.4% in the first three months of the year. Coming on top of a strong rise across 2015, the continued tightening of Hungary's labour market is a good sign for consumption, which has been the major driver in economic growth.
At the same time, on a monthly basis, wages took a bit of a tumble in January and February. That matches a remarkable slowdown in the country’s growth in Q1 on the back of a feeble performance of the industrial and construction sectors.
A 5.7% rise in the minimum wage, as well as a salary increase for armed forces and the payment of an additional allowance for those working in the social field, had an impact on earnings growth in the first quarter, KSH reports. However, it was the 1pp cut in income tax introduced at the start of the year that likely had the greatest effect on net wages, which increased by 7.7% y/y.
While the government points at an unemployment rate that has dropped to pre-crisis levels of 6% in January-March, the opposition claims the tightening labour market is primarily due to state work schemes that are exploitative and massage the data. The unemployment rate adjusted to include those in government schemes fell below 11% in Q1 2016. Analysts report that in parts of western Hungary, in particular around the auto-making hub off Gyor, labour shortages are appearing.