The Dilemma of Hungary's Strong Labour Market: Improving Metrics Amidst a Technical Recession
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The dilemma of Hungary’s strong labour market
A strengthening labour market during a technical recession is something which we are not used to seeing. Yet, Hungary’s labour metrics have been improving recently, raising the pro-inflationary risk once we emerge from the real economic downtrend.
The Hungarian labour market is very resilient
The Hungarian Central Statistical Office (HCSO) has released the latest set of labour market data (wages and the unemployment rate). Wage growth remained strong in April, despite lower bonus payments, with the drop in real wages roughly unchanged compared to the previous month. Labour market participation has risen and remains close to record high levels, as the cost-of-living crisis encourages a willingness to work. This, along with still present labour shortages in some sectors, is helping to lower the unemployment rate during a technical recession.
Regular wage growth picked up again
Starting with wages, outflows remained quite strong, with average gross wages rising by 15.5% year-on-year (YoY) in April 2023. However, the yearly based figure was slightly lower than our own expectations, as we had anticipated higher bonus payments. In this regard, regular gross earnings rose by 16.9% on a yearly basis in April, breaking a four-month-long streak of deceleration in the growth rate of regular gross earnings.
Nominal and real wage growth (% YoY)
Looking at the divergence in wage growth between the private and public sectors, the impact of bonuses is clearly visible. While public sector wage growth accelerated to 13.4%, private sector wage growth slowed to 16.4%. This is in line with our previously mentioned view; that this year in April higher earners missed out on last year’s bonus payments.
From a sectoral perspective, wages grew above average in almost all sectors, with construction and financial services being the only two exceptions. The former is hardly surprising, given that construction activity is suffocating under high interest rates and shrinking order books. As for financial services, a mere 2.4% increase in average wages was registered, which signals that this was the main area where bonuses were not paid to the same extent as last year.
Wage dynamics (three-month moving average, % YoY)
Going forward, we expect the 2023 full-year wage growth to be around 15-16%. As cumulative average wage growth was 12% in the first four months of the year, we expect some strengthening for the rest of the year. One reason for this is the wage agreement reached during the year for some parts of the public sector. In addition, as the economy slowly recovers in the second half of the year, demand for labour may remain strong (counterbalancing the seasonal effects) pushing up the pace of wage growth further.
Unemployment rate keeps lowering
Speaking of demand for labour, unemployment continues to fall in Hungary, according to the latest HCSO model estimate for May. It shows that the number of unemployed has shrunk to 186,000. Meanwhile, the official unemployment rate indicator (used in international comparisons), the three-month moving average survey, also showed a decline, to 3.9% in the March-May period. Of course, these indicators are still above their levels of a year ago, but it seems particularly surprising that labour market indicators are improving during a technical recession. It also shows that this current crisis is unlike anything we have seen before.
Looking at the monthly data, we can see that in recent months the fall in unemployment has gone hand-in-hand with a rise in employment, while the number of labour market participants has remained broadly stable (fluctuating within a statistical margin of error). The employment rate has again approached its historical peak and is not far away from reaching it. Official three-month average-based statistics show a similar trend. Thus, it appears that sectors that are facing labour shortages and remain confident about the future (for example, because they have higher order books than a year earlier) can absorb the right labour from the potential labour pool.
