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Table C. Income gap between wage earners and pensioners 2.

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In recent years, Hungary has experienced a strong economic expansion with one of the highest GDP growth rates in the EU. Employment has also risen quickly. Structural and institutional reforms are also needed to ensure the optimal allocation of resources.

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The current good economic environment creates an opportunity to address the main challenges of the economy, in particular related to the shrinking working-age population, low productivity growth, increasing inequalities and low efficiency of natural resource use 1. The Hungarian economy continues to grow strongly.

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Inthe economy was able to withstand the international growth slowdown, partly thanks to supportive macroeconomic policies. Strong demand for labour has continued to lift employment, while wage growth has remained rapid due to labour shortages and large minimum wage increases.

Favourable labour market trends have helped improve living conditions and reduce poverty. Investment has risen to a record level, thanks to a favourable economic outlook, easy financing conditions, supportive fiscal policy and a large inflow of EU funds.

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The expansion of the economy is set to reach its limits. So far, economic growth has relied on increasing the number of workers, while output per worker has grown modestly.

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With the labour market near full employment, job creation may contribute less to output growth in the coming years. The lack of available skilled labour is a key obstacle to productivity-enhancing investment and innovation.

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Plans for a reduced government spending and the low growth of main trading partners may Automatien suisse anti aging restrict Hungarian economic growth in and Macroeconomic policies have created some risks of overheating. Labour costs, boosted by administrative wage increases, continue to outpace productivity growth. Very low real interest rates and homebuying subsidies have contributed to the rapid increase in house prices.

Easy financing conditions, including several government-supported lending schemes, have created opportunities for businesses to invest.

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However, there is a risk of these resources not being used to support long-term economic growth benefiting society as a whole. Public financial management has tended to increase spending and reduce taxes during good economic times instead of building fiscal buffers. This procyclical fiscal policy, combined with the absorption of EU funds, has contributed to above-EU-average GDP growth over the past years. Fiscal planning remains narrowly focussed on the annual budget, with an increasing role played by budgetary reserves, partly related to the early adoption of the budget.

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This has repeatedly led to heightened spending at the end of the Automatien suisse anti aging year, resulting in public spending on lower quality projects and pro-cyclical fiscal stance.

Discretionary measures have also tended to be procyclical while, by design, the tax and Automatien suisse anti aging system provides a limited cushion against economic cycles. As a result, while the economy continues to perform well, public finances are improving only slowly and in June the Council launched a new significant deviation procedure addressed to Hungary 2. While risks are limited in the near future, the ageing population increases fiscal sustainability risks in the long term.

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Increased investment in research, innovation, infrastructure and skills are essential for improving productivity and for long-term growth that benefits society as a whole.

Public and private investment as a share of GDP is high, but its composition could be better geared towards raising productivity. Research and innovation capacities need to be enhanced to improve moderate innovation performance.

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Territorial inequality could be alleviated by improving infrastructure and public services in deprived areas. Investment is crucially needed in skills, education and training to boost future economic growth in Hungary.

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Other relevant investment spending items are childcare, healthcare and social inclusion. Greening the economy requires investment in energy efficiency, climate change resilience and waste management.

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The institutional framework needs to improve to ensure that the economic and social benefits of these investments are maximised.

Hungary has made limited progress 3 in addressing the country-specific recommendations.

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The government has announced certain measures to improve health care but these only address the recommendation to a limited extent.