Unemployment rate falls by 0.6pps y/y to 3.9% in Hungary

The unemployment rate, measured by the labor force methodology for the 15-74 age group, fell by 0.6pps y/y to 3.9% in March, the statistical office (KSH) reported. The unemployment rate rose by 0.1pps m/m, which was the first m/m increase since Apr 2017. The increase seemed in line with seasonal trends and it also appeared to be mostly due to continued increase in labor supply. Accordingly, we think that there is no turning point on the labor market and we expect it to remain tight in the short- to mid-term. At the same time, we do not see much further downside potential to the unemployment rate, given the remaining labor market rigidities.

There were 177,900 unemployed people in March and their number declined by 14.0% y/y. The average duration of unemployment was 16.4x months and the share of long-term unemployment was 39.8%. Both indicators improved on a y/y basis but were notable worse m/m, which we take as evidence in support of our conclusion that the economy is close to full employment and further unemployment reduction will be difficult.

The y/y decline in unemployment in March was on account of continued labor demand. Total employment in the economy rose by 1.5% y/y and slowed down negligibly compared to the previous period. Employment on the domestic primary labor market rose at a sustained 3.1% y/y rate but was offset by continued contraction in the public work scheme and employment at local units abroad. Positively, employment growth was entirely on account of full-time work while the number of part-time workers was down by 5.2% y/y in the period, in our opinion reflecting the reduction of the public work scheme. In terms of sectors, employment rose the most in construction – up by 16.4% y/y, due to the rapid development of the sector with the pick-up of EU fund absorption as well as the government housing program. Agricultural employment rose by 3.0% y/y and employment in the industry – by 5.5% y/y. Conversely, employment in the market services sector was down by 0.8% y/y.

The rising employment was partly accommodated by further increase in labor supply. The number of economically active people rose by 0.8% y/y in March on account of rising participation ratio. The participation rate has been roughly stable at record high levels since Jul 2017 but we consider it possible to increase further in light of the favorable labor market developments.

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