Hungary’s economy continued to grow rapidly in the first quarter of 2022 (2.1% q-o-q) on the back of a strong fiscal stimulus that boosted consumption and public investment. In addition to strong employment and private sector wage growth, household income was bolstered by a one-off income tax rebate and public wage and pension increases early in the year. Exports also grew briskly thanks to strong demand and a gradual easing of supply chain disruptions.
Last update : Summer 2022 Economic Forecast (14/07/2022)
|GDP growth (%, yoy)||-4,5||7,1||5,2||2,1|
|Inflation (%, yoy)||3,4||5,2||11,8||7,6|
Economic growth is set to slow down markedly in the following quarters. This is already foreshadowed by lower business and consumer confidence, and the flattening level of industrial production and retail sales in April and May. The slowdown is expected to affect all demand components and be driven by rising inflation, tightening fiscal and monetary policies, as well as trade disruptions and rising uncertainty in the wake of Russia’s war of aggression against Ukraine. These factors are expected to weigh on growth throughout the forecast horizon: real GDP growth is forecast to decrease from 7.1% in 2021 to 5.2% in 2022 and 2.1% in 2023.
In recent months, inflation has been driven by strong domestic demand and wage growth, rising commodity prices and currency depreciation. Residential energy prices remained unchanged due to the freezing of residential utility prices and a price cap on motor fuel that was extended until 1 October. Annual average HICP inflation is set to rise from 5.2% in 2021 to 11.8% in 2022. Inflation is projected to remain high at 7.6% in 2023. Although lower consumer demand is expected to curb core inflation, the announced lifting of the motor fuel price cap towards the end of 2022 will push up next year’s inflation. Furthermore, companies are expected to pass on some of the recently announced indirect tax increases to consumers.
Hungary’s outlook remains particularly sensitive to the evolution of the war in Ukraine. Further uncertainties are related to global investor sentiment, and the path of monetary tightening and fiscal consolidation. The inflation profile depends on the duration of price caps, which have been extended several times already. Finally, upside risks to inflation are related to tight labour markets and rising inflation expectations.