Labour shortage to drive new economic strategy in Hungary

By bne IntelliNews August 4, 2016

The Hungarian government will launch a new economic strategy this autumn, involving the amendment of several pieces of legislation, a government official said in comments published on August 4.

The strategy will aim to tackle one the growing labour shortage in the country. A lack of skilled employees is viewed as an increasing risks to investment and growth. Hungary will also aim to reduce its dependence on EU funds and diversify the economy, Economy Minister Mihaly Varga suggested to local weekly Figyelo. However, the official offered few details on how Budapest aims to achieve those goals.

“A new situation is beginning to take shape in employment. From now on the objective is not only to promote new jobs but also to keep the existing ones,” Varga says. "In view of the current manpower situation, the new direction will be to lengthen value chains,” he added. That suggests Budapest could seek to adapt the series of "cooperation agreements" it has pushed on battered foreign investors over the past couple of years.

The government will also take measures to improve the labour flow to those areas of the country where labour shortages are most severe. In parts of western Hungary - in particular around the auto-making hub off Gyor - unemployment is approaching just 1%, analysts stressed to bne IntelliNews earlier this year.

Varga notes that the lack of labour already derailed Hungary's efforts to win one major investment in the automotive sector. The minister did not name the company involved. The most visible major auto investment on which Hungary has lost out in recent years is that of Jaguar Land Rover. The Indian-owned carmaker announced in August 2015 that it will build a new €1.4bn factory in Slovkia.

That said, labour shortages are rising throughout the Visegrad region, and Hungary continues to attract new projects. Daimler announced in late July that it will invest €1.6bn to expand its current plant in Hungary. The Mercedes builder will need to find 2,500 new workers.

Varga admits that there is an ongoing dispute within the government about employing migrant workers. He states, however, that the cabinet insists unemployed Hungarian's should be first in line.

Destpite the mounting problems, the official predicts that economic growth will push to 1.5%-2% y/y in the second quarter, around double the disappointing pace recorded in January-March. He adds, that the government aims to diversify growth sources, so that “the country would not rely solely on EU funds and individual factors."

Speaking about the introduction of the euro, Varga revealed that Hungary will not join ERM II next year, which means that Hungary will not be able to join the Eurozone by 2020, despite Varga’s earlier claims that it planned to do so.


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