3 Productivity potential in the Hungarian economy

The growth rate of productivity has been declining in the developed economies since the second half of the 2000s. In Hungary and the Central and Eastern European region, the process already started before the crisis, worsened as a result of the recession and grew slowly in the subsequent years.

Of the processes determining Hungarian productivity, positive developments started to take shape in the area of employment. In the last three years, the number of people in employment has continuously increased in annual terms.

Another measure of employment, the average number of hours worked per week, has decreased since EU accession in most countries of the CEE region, and thus in Hungary as well. Although since 2013 the negative trend appears to be faltering in this indicator as well, it is changing much more slowly than the number of people in employment.

With improving employment statistics, per capita productivity returned to the pre-crisis level in 2011-2012 after the decline in 2009 and has been increasing ever since. The return to the pre-crisis level was still one of the slowest in a regional comparison. Productivity per working hour has been stagnating since 2009 and did not surpass its pre-crisis level before 2014. The increase in labour productivity measured in working hours is the slowest in Hungary among the Visegrád countries: the labour productivity of the other countries has been above the pre-crisis levels since 2012.

Similarly to labour productivity, total factor productivity was also impacted negatively by the crisis and this only started to grow again in the last two years. Examining manufacturing companies, it can be established that the role of individual productivity increase (TFP) is the most significant; companies achieved relatively smaller growth with the more efficient utilisation of the resources within the company, such as investment or hiring. The reallocation between the companies made a major contribution to the aggregate productivity increase after 2009. The reallocation took place primarily among the manufacturing industries rather than within specific industries.

Productivity is a long-term determinant of economic

growth. Productivity expresses the efficiency of the allocation of production factors in the output generating process. This chapter examines the productivity of the Hungarian economy and Hungarian companies, comparing them with the processes in the Visegrád countries (Czech Republic, Poland, Romania and Slovakia). We examine the changes in the factors that determine productivity, the development of employment, value added and investments in the context of the countries and the key macroeconomic sectors. We also touch upon the issue how the resource allocation between the industries and the companies impacts growth in productivity. Moreover, we briefly discuss how productivity can be measured and what kinds of problems arise in relation with estimation.