Consumption growth is a major contributor to Hungary’s GDP growth this year as well

According to the model calculation of Századvég Konjunktúrakutató, we expect slightly lower growth in 2025 compared to our December 2024 forecast. We have revised our growth expectation from 2.6% to 2.3%, mainly due to a higher-than-expected inflation environment and a weak external environment.

Inflation could peak above 5.0% in Q1 2025 and then again approach the upper end of the inflation target range (4.0%) by the end of the year. Thus, the annual inflation rate could reach 4.5% in 2025, and then fall to an annual average of 3.3% in 2026. World markets will be decisive for inflation. For one thing, the trend of disinflation so far appears to be coming to an end: accelerating global inflation and a global rise in food prices could raise imported inflation. For another thing, as oil production capacity increases, the global fall in fuel prices could reduce inflationary pressures. Moreover, the evolution of the forint exchange rate also has a strong impact on Hungarian inflation trends: with the euro exchange rate stable at around 400 forints, the inflation rate may slow down. Inflation trends also determine the central bank’s room for manoeuvre: even with favourable inflation and money market developments this year, we expect only one rate cut in Q4 2025.

In 2025, Hungarian gross domestic product (GDP) is expected to grow by 2.3%, followed by 3.7% in 2026. The main growth driver could be consumption, which is expected to rise by 3.1% this year and 2.7% next year. Consumption growth could be supported by rising real wages, the government’s economic action plan, the extension of the scope of exemptions from income tax and the payment of interest on retail government securities due this year. However, unfavourable inflation trends may cause households to be more cautious, which could hold back consumption growth.

Investment is more likely to grow significantly in the second half of the year. Positive investment figures may also be due to major industrial investments (BMW, BYD, CATL) and the implementation of various public infrastructure developments. Last year’s low base may also play a role in the positive contribution of investment to Hungarian GDP in the second half of the year. Investment is expected to grow by 2.9% in 2025 and 3.4% in 2026. If investment grows faster than expected or the turnaround comes earlier, our annual forecast for both GDP and investment could be revised upwards.

Exports could grow by 2.7% in 2025 and 5.2% in 2026. Looking at year-on-year dynamics, we also expect exports to pick up in the second half of the year. The performance of the German economy will be crucial for exports: if the German economy resumes growth thanks to the release of the debt brake, this in itself could have a positive impact on the Hungarian economy’s performance. In addition, the key issue is the performance of the European automotive industry. The US tariff policy has a negative impact on the European and especially the German automotive industry, but the EU’s response could help boost the European automotive industry by changing carbon emission standards, supporting battery production and supporting digitalisation and innovation projects in the automotive industry.

Domestic imports could rise by 3.6% this year and 4.1% next year. In the first half of the year, rising consumption may cause imports to outpace export growth, which could result in net exports holding back economic expansion in the first half of the year. However, rising exports in the second half of the year could make net exports a positive contributor to GDP growth, and we expect net exports to remain positive in 2026.

In the labour market, we expect unemployment to fall over the next two years (4.1% in 2025 and 3.3% in 2026), with gross wages forecast to rise by 6.9% in 2025 and 5.6% in 2026. Recent dynamic price increases have pushed many people, such as retired people and students, into the labour market over the last year and a half or two years, leading to a surge in activity and a simultaneous rise in unemployment while maintaining employment levels. In the second half of 2024, however, the trend may have started to reverse slowly: activity fell steadily from the middle of the year onwards, back to its levels before the price shock, and this was gradually followed by a decline in the number of the employed and the unemployed. With the cooling of what can be seen as exceptional economic conditions, strategic changes to sustainably expand the labour market could come back to the fore this year. The 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. 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 women with children from paying personal income tax.

According to the government’s still provisional communication, the ESA-based budget deficit will be 4.8% of GDP at the end of 2024, 0.3 percentage points higher than the government’s target.  Government debt reached 73.6% of GDP at the end of the year, a slight increase compared to the end of the previous year.

We consider the 3.7% deficit target projected in the 2025 Budget Act to be sustainable under tight fiscal management, but there is an upside risk in relation to maintaining the planned level of expenditure in the budget bodies and professional chapters. There is also a risk of a shortfall in EU revenues, which could be addressed by a similar reduction in expenditure under EU programmes. Our projections suggest that government debt could fall to 73.0% of GDP in 2025. The latest statement by the Ministry for National Economy forecast a deficit of 3.5% of GDP in 2026, up from the previously expected deficit of 2.9% of GDP. The increased deficit target, in our view, provides sufficient room for manoeuvre to implement the tax cuts and expenditure-increasing measures announced for 2026.

Our calculations are based on a model with external assumptions. The forint exchange rate, the international interest rate environment, oil prices, imported inflation and European economic developments are all factors that determine domestic developments. Changes to these assumptions can have a significant impact on the economic developments that take place.

Table: Forecast of Századvég Konjunktúrakutató

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