Unemployment rate declines by 0.6pps y/y to 3.8% in Hungary

The unemployment rate, measured by the labor force methodology for the 15-74 age group, declined by 0.6pps y/y to 3.8% in December, the statistical office (KSH) reported. The unemployment rate was unchanged on a m/m basis. We think the m/m change was generally in line with average seasonal trends but in the current cycle upturn it could signal limited further downward potential. There were 175,200 unemployed people during the month and their number declined by 14.5% y/y. Overall, the data for December did not show significant change in labor market trends since the previous period, in our view.

The share of long-term unemployment was 40.0% in December and improved noticeably on a m/m basis. The improvement, however, only overcame the gradual increase in the indicator from the previous periods so we do not read it yet as a signal for increased employability of the pool of unemployed. The average duration of unemployment fell to 15.6x months.

Total employment in the economy amounted to 4.4mn people and increased by 0.8% y/y. Employment growth was flat from the previous period and stabilized after gradually slowing down since the beginning of the year. The slowdown of employment growth was mainly on account of the contraction of the public work scheme and less so to the discouraging impact of the sharp minimum wage hikes, in our view. In particular, the number of public work employees fell at an accelerating 18.0% y/y rate in December. Employment by local units abroad also declined strongly by 11.0% y/y during the period. In contrast, employment on the primary domestic market rose by 2.2% y/y and picked up slightly from the previous period.

Labor supply also maintained a stable but very low pace in December. The number of economically active people rose by 0.1% y/y, reflecting some flattening in the recent upward trend of the participation rate. The earlier increase in the participation rate was likely related to the economic upturn and the increasing job opportunities, in our opinion. We think that the tightening of the labor market will intensify in case the government’s measures fail to activate part of the inactive people in working age.

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