Summary of key findings The Growth Report presents a comprehensive view of the achieved and expected development trajectory of the Hungarian economy and its key determinants over a longer time horizon. The Magyar Nemzeti Bank issues a number of regular publications which analyse economic growth, such as the Inflation Report, the Report on the Balance of Payments and the Financial Stability Report. These publications, however, tend to concentrate on shorter-term movements in the economy, analysing the effects of variables that influence monetary policy. The purpose of the Growth Report, which is published annually, is to present Hungary’s growth path and its determinants directly, using standard as well as alternative indicators, and preferably identifying longer-term trends which may even encompass an entire business cycle. In addition to a detailed survey of the available domestic data, the analyses are complemented with international and historical comparisons. The last report was published in 2014 and focused on the Hungarian growth path since Hungary’s EU accession, with particular attention to the post-crisis adjustment processes and the role of capital formation in longer-term growth trends. The current report primarily concentrates on the factors that have led to the development of a global economic environment characterised by moderate inflation, low interest rates and restrained growth. As regards conditions for domestic growth, we continue with a more indepth analysis of the key factors of production. Trends in human capital and productivity were analysed both in terms of quantitative attributes and structural features. Finally, the effects of the macro-level growth were qualified by alternative indicators and regional surveys. The most important findings in the 2015 publication can be summarised as follows: Global growth and a more dynamic expansion of trade may remain out of reach for a longer period of time. Even more than seven years after the outbreak of the global crisis in 2008-2009, economic growth in the developed economies remains moderate. Despite the extremely accommodating monetary policy environment, inflation is still low and the labour market recovery is slow and sluggish. In recent years, significant risks to growth were seen even in the emerging economies, which had previously been the engines of growth after the crisis. The recovery period, which is considerably slower than those experienced after previous crises, may be attributable both to structural reasons and to special features of the current financial cycle. Due to the more moderate global growth environment, the preservation and improvement of competitiveness play an even more important role in the maintaining the dynamic expansion of domestic exports. In relation to the longer-term structural growth capacity, the effects of deterioration in demographic factors appeared already before the crisis, first in the developed regions and later in the less developed regions. In addition, productivity growth gradually decelerated due to the weakening macroeconomic effect of innovations. The share of investments in aggregate demand has declined in the developed regions, which may curb productivity growth even over the longer run. In contrast to past innovation waves in economic history, an increasing part of current innovation focuses on consumption rather than on production. According to certain analyses, in the case of production-related innovations the spread of innovation (known as “diffusion effect”) has also decelerated from the leading edge of the world to the small and medium-sized enterprises. Persistent deceleration can be observed in almost all factors of production, which was further exacerbated by the crisis. In addition to the real economic factors, long-term financial factors also influence growth prospects. The short-termism of the financial markets also acts against the expansion of capacities and investment in research and development, which paves the way for longer-term success. Enterprises allocate a steadily decreasing GROWTH REPORT • 2015
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