Subdued economic growth this year, above 2% expected next year

Inflation

With regard to external developments, inflation in the euro area is likely to remain moderate over the forecast horizon. At present, annual base inflation is expected to be around 2.2% in the Q4 2025, based on October and November data. According to the European Commission’s forecast, annual inflation in the euro area could be 2.1% this year, 1.9% next year, and 2.0% in 2027. Inflation expectations for the euro area suggest that imported inflation in Hungary could be low in the period ahead. In addition, we expect Brent oil prices to moderate over the forecast horizon.

Hungarian inflation has been on a downward trend over the year, with the year-on-year rate easing to 3.8% in November. For the rest of the year, the extension of the margin freeze until the end of February 2026, combined with the high base, should further moderate inflation. In addition, the strong forint exchange rate and the favourable external inflation environment may also contribute to more favourable inflation dynamics than the baseline through a reduction in imported inflation. We expect Hungarian inflation to reach 4.5% in 2025, 3.7% in 2026 and 3.2% in 2027. Inflation could be close to the 3% target by the end of the forecast horizon, in 2027.

Although Hungarian inflation developments could open up room for monetary easing, we expect a cut in the base rate to be likely only in the second half of 2026. This is because there are still some inflationary pressures in the economy, which margin regulation and voluntary price-capping measures can only temporarily address. In addition, the carry trade, which is based on interest rate differentials, continues to be a key determinant of forint appreciation, which, despite the fact that the MNB has no exchange rate target, is a key determinant of inflation developments.

GDP

In Q3 2025, Hungarian GDP grew by 0.6% on an annual basis, according to seasonally and calendar-adjusted and balanced data, while it stagnated on a quarterly basis. This means that in the first three quarters of 2025, the Hungarian economy grew by 0.3% based on raw data and by 0.2% based on seasonally and calendar-adjusted data compared to the same period of the previous year. This year, consumption once again supported economic growth. We expect that the Hungarian economy will expand by 0.4% in 2025, 2.4% in 2026 and 2.5% in 2027.

We forecast that consumption will continue to be the main driver of growth next year. Consumption may grow by 3.4% this year and 3.5% in 2026, supported by real wage growth and the government’s expanding tax reduction measures (introduction of personal income tax exemption, family tax allowances).

The HCSO carried out planned data revisions for both GDP (foreign trade prices) and investment. As a result of the data revision affecting investment, the investment (gross capital formation) time series changed significantly compared to previous figures: in the first three quarters of the year, they produced changes of 2.2%, −5.9% and 10.9% on an annual basis. Within gross capital formation, fixed capital formation declined in 2025, mainly due to the lack of business confidence resulting from the unpredictable international environment and the weak economic outlook in Europe. In addition, inventories rose significantly in Q3 2025. We expect a modest increase in investments during the remainder of the year. We estimate that investments could grow by a total of 2.8% in 2025, followed by 2.2% growth in 2026 and 2.5% growth in 2027. In addition to base effects, rising private investment and improving business confidence may also contribute to the strengthening of investment over the forecast horizon.

The data revision also affected domestic export performance: a decline greater than that suggested by the previous data is now apparent for the first nine months of the year. We have therefore revised our own expectations downwards and currently anticipate a decline of 1%. Exports could increase in the next two years: growth could reach 4.3% in 2026 and 5.5% in 2027. The customs agreement between the European Union and the United States could transform international trade, which could affect the export and import prospects of both Hungary and our main European trading partners. For Hungary, trends in the German market continue to be of decisive importance.

With consumption growing, we expect imports to increase by 1.7%, followed by growth of 5.1% and 5.3% in the next two years. Net exports are expected to be negative in the coming period and may turn positive at the end of the forecast horizon.

Labour market

The labour market remained stable, but weaker economic performance meant that the expansion expected at the beginning of the year did not come to pass. Compared to the same period last year, the number of employees decreased by 29,500 and the unemployed by 3,100. The population decline resulting from an aging population (aged 15-74) affected both the economically active and inactive populations, so that key labour market indicators improved despite a decline in the number of people in employment. In terms of activity rates, the employment rate stood at 65.4% in Q3 2025, which is 0.2 percentage points higher than in the same period of the previous year, while the unemployment rate was 4.5%, which is 0.1 percentage points lower year on year. This means that in Q1-Q3 2025, the employment rate was 68.3% and the unemployment rate was 4.4%.

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. In addition to highly aggregated key indicators, it is also important to mention more detailed data. Companies need to adapt to the slowly improving economic landscape: employment figures show that part-time work became more common, while the number of full-time employees dropped in the first three quarters of this year. Broken down by economic sector, the number of employees in industry fell by 45,000, largely in construction and manufacturing, while the number of employees in the service sector remained unchanged on an annual basis. All of this suggests that the labour market is holding up for now, but negative external factors are also affecting this area of the economy.

In 2026, alongside economic growth, strategic changes aimed at sustainable expansion of the labour market may once again come to the fore. Government’s target is that the activity rate of the 15-64 age group in Hungary reaches 85% by 2030 (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. We expect unemployment to start falling over the next two years (2026: 3.8%, 2027: 3.2%), while gross wages are forecast to rise by 7.1% in 2026 and 6.5% in 2027.

Government budget

In the 2025 fiscal year, most of the major tax revenue items (personal income tax, social security contributions, and social contribution tax) will be close to meeting government targets, with a minor shortfall (less than HUF 80 billion) in VAT and excise duties. The shortfall in corporate tax revenues is considered significant, with a deficit of at least HUF 280 billion expected compared to budget targets. Revenues from the EU were significantly lower than the government’s plans during the year, with a shortfall of HUF 1,150 billion, but the annual decline was much more modest, amounting to HUF 94 billion so far. On the expenditure side, the expenditures of budgetary bodies exceeded government expectations to the greatest extent, followed by interest expenditures in terms of amount.

In November, the Ministry of National Economy raised the budget deficit target to 5% of GDP for both 2025 and 2026. We forecast that the revised deficit targets will be met, but the change in the ESA bridge and the larger-than-expected deviation of local governments’ deficits from the targets set in the Budget Act entail some risk. We expect the consolidation of the budget deficit to start in 2027.

Given the lower GDP growth and higher cash flow deficit, we do not expect the government debt-to-GDP ratio to decline either this year or next. Government debt is expected to rise to 73.8% of GDP at the end of 2025 and then to 73.9% of GDP at the end of 2026, before falling again at the end of 2027.

Table: Forecast of Századvég Konjunktúrakutató

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