Hungary has made significant progress toward closing the income gap with the European Union over the last two decades, but regional disparities widened and the ongoing twin digital and green transitions could worsen regional inequalities, the International Monetary Fund (IMF) warned in a recent report.

Over the past two decades, Hungary’s per capita income has risen from 66% of the EU average in 2010 to 76% by 2022.

The progress is largely attributed to Hungary’s integration into global supply chains, particularly in the automotive sector, and increased foreign direct investment (FDI) in electric vehicles (EV) and battery manufacturing. 

However, the income gap between regions widened and divergence in productivity and labour force participation have been the key drivers of these disparities, the IMF stressed. 

Economic growth in the capital far outpaces other regions, while southwestern and northeastern areas struggle. While Budapest and its surrounding areas have thrived, southern and northern regions have faced stagnation.

The IMF points out that differences in productivity, workforce participation and the concentration of low-value, carbon-intensive industries have also contributed to these imbalances.

The report notes that the Hungarian economy, like others in Europe and globally, is undergoing the twin digital and green transitions, requiring structural adjustments that vary by region due to differing economic structures and specialisations.

Hungary’s poor readiness for artificial intelligence (AI) and related digital technologies, particularly in rural areas, threatens to widen the gap even further.

Without focused policy interventions, Hungary risks being left behind in the global shift to AI and green industries, exacerbating the challenges faced by underdeveloped regions.

The report notes that absent targeted policy interventions, regional disparities may deepen as higher-income regions exploit their high knowledge and green intensity to thrive, while poorer regions lag.

Good governance at regional levels as well (anti-corruption, regulatory quality of public institutions) could mitigate these gaps and promote dynamism and growth in regional economies, the report noted.

The European Commission's Cohesion report published in the spring led to the same conclusions, financial website Portfolio.hu writes. Some of these recommendations have been incorporated into the updated strategy of the Ministry of Public Administration and Regional Development, headed by Tibor Navracsics, who led talks with the European Commission on unfreezing EU funds.

The findings of the IMF research paper also chime with recent data from Eurostat, which showed that three Hungarian regions were among the 20 poorest in the EU, and Budapest stood out generating 40% of the country’s GDP.

Last year, per capita GDP was 158% of the average in the capital, or the 15th highest in the EU. The four poorest Hungarian regions had per capita GDP between 50-55% of the EU average.