Consumption to support economic growth in 2025, Hungarian economy to accelerate next year

Inflation

As regards the external environment, European inflation reached 2.0% in Q3 2025 and may decline further next year. The European Central Bank forecasts that the euro area inflation rate will be 2.1% in 2025, 1.7% in 2026, and 1.9% in 2027. In line with these inflation expectations, the European Central Bank left the refinancing rate unchanged in September after its June decision, and it remains at 2.15%. Favourable external inflation trends should keep external inflationary pressures in Hungary contained.

The price of Brent crude oil fluctuated wildly after the outbreak of the conflict between Israel and Iran, demonstrating that oil prices are highly dependent on global geopolitical developments. In our current forecast, we have again assumed a downward trend in oil prices, ranging between USD 70 and USD 66.

In Hungary, changes in the prices of food and services contributed most to inflationary dynamics in the first half of the year. High inflation remained typical for these two product groups in Q3, but, in July and August, household energy prices also jumped (which is difficult to estimate due to regulated prices), thus contributing to inflation dynamics exceeding 4% despite the small weight of this product group in the consumer basket. Domestic inflation trends are rather characterised by downside risks. Extending price caps until the end of November could moderate the rate of price increases this year. If the measure is extended beyond November, inflation may decline and the rate of monetary depreciation in Hungary may return to the central bank’s target range. The strength of the forint may also contribute to more favourable inflation dynamics than the baseline path through a reduction in imported inflation.

Factoring in global and Hungarian trends, Hungarian inflation could be 4.7% in 2025, 3.8% in 2026, and 3.5% in 2027. We expect inflation in Hungary to fall to around 3% by the end of 2027. Domestic inflation trends determine the central bank’s room for manoeuvre this year: despite interest rate cuts by major central banks, the current strict communication policy of the Hungarian central bank suggests that the base rate is likely to remain at 6.5% until the end of the year. Carry trade, which exploits interest rate differentials, may thus continue to support the strength of the forint. We expect interest-rate cuts in Q1 next year at the earliest.

GDP

Seasonally and calendar-adjusted and balanced data show that Q2 2025 GDP was 0.2% higher on an annual basis and 0.4% on a quarterly basis. In the first half of 2025, GDP stagnated in raw data terms and showed a 0.1% decline in terms of seasonally and calendar-adjusted data. We expect that the Hungarian economy will expand by 0.8% in 2025, 2.7% in 2026 and 2.3% in 2027.

Based on developments in the first half of the year, Hungarian economic growth will be powered mainly by rising consumption in 2025. Our calculations indicate that consumption may increase by 4.1% this year and 4.2% next year. Consumption growth can mainly be attributed to real wage growth, the government’s economic action plan, the increasingly widespread personal income tax exemption for mothers, and the increase in the amount of the family tax benefit, all of which increase the disposable income of households.

Investments fell by 11.6% in Q1 compared to the same period last year. In Q2, investments rose by 0.4% year on year. The reasons for the weak investment performance are mainly to be found in the lack of business confidence resulting from the unpredictable international environment and the weak economic outlook in Europe. We expect a modest increase in investments during the remainder of the year. We expect investment to shrink by an overall 2.1% in 2025, followed by growth of 6.3% in 2026 and 3.6% in 2027. In addition to base effects, the capitalisation of large investments and the government’s factory construction programme may also play a role in the strengthening of investments.

Hungarian exports could grow by 0.7% in 2025. Looking at the dynamics during the year, we expect exports to pick up rather in the last quarter of the year. Hungarian exports could grow by 5.1% and 5.4% respectively over the next two years, but this is conditional on external demand picking up. Exports growth may be boosted by lower uncertainty thanks to the customs agreement and the expected upturn in the German economy. Hungary’s imports may rise by 3.3% this year, by 6.2% next year and then by 5.9% in 2027, mainly supported by consumption growth. In addition to consumption, the import demand for exports is also high, so we expect net exports to negatively affect economic growth in 2025, which may slowly turn positive again by 2027.

Labour market

The labour market continues to prove resilient in the face of negative external factors, with an employment rate of 65.1% in Q2 2025, down 0.1 percentage points from the same period last year. In addition, the unemployment rate rose by 0.2 percentage points to 4.5%.

The trends behind the key figures have remained stable over the past year and a half to two years, with economic activity and employment rates continuing to grow, while unemployment remains at around 4%, which is considered economically healthy. The decline of the economically active population is a recurring issue every quarter, but a closer look at the data reveals that the working-age population has declined faster than usual in the last two quarters, which is a characteristic feature of the Hungarian age structure.

In addition to the trends, it is also worth mentioning the unique factors that dominated Q2 2025. In the first half of the year, agriculture was hit by the contagious foot-and-mouth disease virus, the effects of which are also reflected in lower employment figures. This year’s cool, variable summer weather already had an impact in June, which may explain the decline in the accommodation and catering sector.

2025 could see strategic changes for sustainable labour market growth come to the fore again: the government’s goal is to reach an activity rate of 85% among 15-64 year olds in Hungary by 2030 (it reached 78.6% in 2024). This requires helping current jobseekers into the labour market, as well as identifying the potential labour reserves in the inactive population and helping them into work through the right labour market action plan. Labour market developments are positively influenced by the relevant points of the New Economic Policy Action Plan announced at the end of last year, such as the three-year wage agreement, the increase in the family tax benefit and the exemption of mothers from paying personal income tax. We expect unemployment to start falling over the next two years (2025: 4.3%, 2026: 3.4%), while gross wages are forecast to rise by 9.2% in 2025 and 7.1% in 2026.

Government budget

In the 2025 fiscal year, the most significant tax revenue items (VAT, personal income tax, social security contributions, and social contribution tax) will perform as expected, with the exception of the corporate tax and excise duty, where a shortfall is expected. Revenues from the EU were significantly lower during the year than the government had planned. On the expenditure side, the expenditures of budgetary bodies exceeded government expectations to the greatest extent, followed by interest expenditures and the over-performance of expenditures in the state investment chapter in terms of amount. In an interview with Reuters in early September, Minister of National Economy Márton Nagy said that the budget deficit could reach 4.5% of GDP, but that the government’s main objective of continuously reducing the deficit would not be jeopardised by this amendment. Our forecast is quite similar to the communication from the minister, projecting a deficit of 4.6%. The increase in spending by budgetary bodies and uncertainties surrounding the receipt of EU funds remain the primary risk factors for increasing the deficit. Budget deficit consolidation will continue in 2026, with a deficit-to-GDP ratio of 4.0% expected next year.

In line with the MNB’s forecast, the slower growth, the higher cash deficit and local government deficits mean that we do not see the reduction in the ratio of government debt to GDP (2024: 73.5%) as achievable this year, only next year. Government debt is expected to rise to 73.7% of GDP at the end of 2025 and then to decline to 73.0% of GDP in 2026.

Table: Forecast of Századvég Konjunktúrakutató

Remark: The base rate of the central bank applies to the last quarter of the year.