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Economy and Finance
  • 15 November 2024

Economic forecast for Hungary

The latest macroeconomic forecast for Hungary. 

Economic growth is forecast to increase from 0.6% in 2024 to 3.1% in 2026. Consumption is set to be the main growth driver with exports and investment expanding more gradually due to moderate growth at trade partners. Headline inflation receded significantly in 2024 but inflationary pressures remained elevated owing to increasing demand, a 15% minimum wage increase in December 2023 and currency depreciation. The general government deficit is projected to remain high in 2024, but is set to decrease gradually thereafter. The debt-to-GDP ratio is forecast to increase this year and diminish slightly by end-2026. 

Indicators202420252026
GDP growth (%, yoy)0,61,83,1
Inflation (%, yoy)3,83,63,2
Unemployment (%)4,54,34,1
General government balance (% of GDP)-5,4-4,6-4,1
Gross public debt (% of GDP)74,574,573,8
Current account balance (% of GDP)2,11,21,0

Gradual recovery amid remaining weaknesses 

Real GDP is expected to grow by 0.6% in 2024. Consumption has grown steadily thanks to a resilient labour market combined with high wage increases and monetary policy accommodation. At the same time, investment remains sluggish due to the postponement of public investments and a deterioration in business sentiment. Subdued demand from Hungary’s trading partners, and especially for machinery and transport equipment, has also hampered exports. 

GDP growth is forecast to increase to 1.8% in 2025 and 3.1% in 2026. Consumption is expected to remain the key growth driver, supported by strong real income growth. The saving rate of households is also set to gradually decline from its current high level. Although rising demand is projected to drive investments, uncertainties particularly around the outlook for the automotive industry are expected to weigh on investment levels. Exports are forecast to increase gradually driven by improving demand and large foreign direct investment projects in manufacturing. However, the projected recovery of domestic demand is set to boost imports and reduce the current account surplus in 2025. 

Risks to the outlook include a prolonged weakness of demand in the automotive sector and a deterioration in terms of trade, which could weigh on growth and the current account balance over the forecast horizon. At the same time, expansionary fiscal policies and continued wage pressures could maintain inflationary pressures and weaken competitiveness. 

Labour market expected to remain tight overall 

The unemployment rate increased to 4.5% in Q2-2024, and the number of job vacancies fell. The economic recovery is expected to increase labour demand and the unemployment rate is projected to decline over the forecast horizon. While the labour market is set to tighten gradually, nominal wage growth in 2025 and 2026 is projected to ease from a high level as the impact of past minimum wage increases are fades. 

Inflation to decrease gradually 

HICP inflation fell from 17.0% in 2023 to 3.0% in September 2024, as the impact of earlier energy and food price increases and supply chain bottlenecks eased. However, HICP inflation excluding energy and food remained elevated at 5.6% during the same period. Pricing of certain services was affected by the high inflation in previous years. This, together with strong wage growth, increasing consumer demand, and currency depreciation, has been fuelling domestic price pressures in 2024. Underlying inflation is set to decelerate gradually, in line with lower commodity prices and wage growth. HICP inflation is forecast to decrease from 3.8% in 2024 to 3.6% in 2025 and to 3.2% in 2026. 

Elevated, but decreasing budget deficit  

The budget deficit is projected to decrease from 6.7% of GDP in 2023 to 5.4% of GDP in 2024. This is driven mostly by lower subsidies to utility companies to cover their losses from regulated energy prices, postponements in public investments, and a moderate rebound in tax revenue. The net budgetary cost of measures to mitigate the impact of high energy prices, after deducting the windfall profit taxes collected from the energy sector, is estimated to fall from 1.6% of GDP in 2023 to 0.9% in 2024. Labour tax revenue is set to grow on the back of robust wage growth, while taxes on production are projected to increase, mainly due to the increasing tax burden on the financial sector. Capital expenditure is projected to decrease significantly in 2024 as a result of already announced postponements in public investment spending and a low absorption of EU funds.  

The deficit is projected to diminish further to 4.6% of GDP in 2025 and 4.1% in 2026. The fiscal stance is projected to be expansionary at -1.2% in 2025 and -0.3% in 2026. Primary expenditure growth is set to remain subdued, as subsidies will continue to decline, while interest expenditure is forecast to decrease due to lower coupons on inflation-linked bonds. Capital expenditure is projected to increase gradually from a low level in 2024. The phasing out of sectoral and windfall profit taxes, in line with their sunset clauses, is estimated to reduce revenue by some 0.6 pps. of GDP in 2025. The fiscal outlook is surrounded by uncertainties stemming from subdued growth prospects in the medium term, and government’s spending decisions at the end of 2024 and in 2025. This forecast does not incorporate in full the announced tax measures for 2025 fiscal year due to lack of sufficient detail at the forecast cut-off date. 

The debt-to-GDP ratio is projected to reach 74.5% of GDP in 2024, driven by a high budget deficit and financing of the purchase of the Budapest airport, and to remain at 74.5% in 2025. It is then forecast to decrease to 73.8% in 2026, supported by the continued high nominal GDP growth.