Inflation is expected to be 3.7% this year, 3.6% next year and 2.9% in 2026. International disinflationary trends are likely to continue in the next two years, which could have a positive impact on the development of prices in Hungary. However, the evolution of the forint exchange rate will remain an important issue in the coming years: with a weaker exchange rate, inflation could remain above 3.0%. The forint exchange rate also determines the central bank’s room for manoeuvre: the next few quarters are unlikely to provide much room for further interest rate cuts, but we expect a more favourable interest rate environment in the longer term.
In 2024, the Hungarian gross domestic product (GDP) is expected to grow by 0.7%, while in the next two years, it is forecast to expand by 2.6% and 3.1%, respectively. In the light of the favourable consumption data recorded during the year, consumption is expected to grow by 4.0% this year. Thereafter, consumption is expected to grow by 3.3% in 2025 and 2.9% in 2026. Rising real wages, easing inflationary dynamics, the effects of the economic action plan and the payment of interest on government bonds due in 2025 could boost consumption and reduce households’ cautiousness. The 21-point action plan can support household spending in two ways: firstly, it aims to increase earnings through wage agreements, and, secondly, it boosts household investment (new housing purchases) by improving housing conditions.
Investment is expected to fall by 9.1% over 2024. Over the coming years, improving the SME sector’s access to finance and supporting its investment will be a key area for economic policy. However, even with this and the low interest rate environment, we expect a slow recovery in investment activity, with investment expected to grow by 0.8% in 2025. In 2026, however, growth is expected to reach 4.1%.
Exports could shrink by 1.3% in 2024, followed by a 5.6% expansion in 2025 and 4.6% in 2026. The most important factor for Hungarian export performance is the development of external demand, especially the development of German automotive capacities, for which expectations are still negative. If German industrial performance picks up again and can expand substantially, this could further boost demand for Hungarian exports.
Imports are expected to shrink by 2.4% in 2024. In contrast, imports are expected to increase by 5.9% and 4.2%, respectively, over the next two years. Overall, we expect net exports to remain negative in 2024 and 2025, and we expect our foreign trade activity to contribute positively to GDP growth only from 2026 onwards.
In Q3 2024, as employment fell, activity fell, while the number of unemployed rose. It is clear that many of the new entrants to the labour market last year managed to find a job in the last quarter. The fall in activity may be due to the fact that new entrants last year only temporarily returned to the labour market and left after price levels stabilised (students and pensioners). Finding a new labour market equilibrium is time consuming, and several macroeconomic trends (difficulties in the global automotive sector, the slowdown in construction) are hitting the labour market at the same time, leading employers to wait and see. As the economic outlook improves, the number of unemployed will return to its previous trajectory. We forecast employment to continue to rise over the forecast horizon, while unemployment will start to fall slowly from next year. We estimate that unemployment will reach 4.6% by the end of 2024, and then the market will return to its previous state by 2025, when the unemployment rate will fall again to 4.2%, combined with a high level of employment.
According to our fiscal forecast for 2024, the ESA deficit target of 4.5% of GDP will be met: we can already see that the budget has sufficient room for manoeuvre to reach the deficit target by the last month. The assumption behind our projection of a 73.2% government debt level at the end of the year is that the government will take sufficient action to ensure a declining debt path.
We consider the 3.7% deficit target projected in the 2025 Budget Act to be currently sustainable under strict fiscal management, with the main downside risks related to maintaining the planned level of expenditure in the budget bodies and professional chapters. Our projections suggest that government debt could fall to 72.9% of GDP. This is only 0.3 percentage point higher than the level of government debt in government plans.
Table: Forecast of Századvég Konjunktúrakutató
|
2023 |
2024 | 2025 |
2026 |
|
| Gross domestic product (volume index) |
-0.8 |
0.7 | 2.6 |
3.1 |
| Household final consumption expenditure (volume index) |
-1.5 |
4.0 | 3.3 |
2.4 |
| Gross accumulation (volume index) | -16.9 | -9.1 | 0.8 | 4.1 |
| Export volume index (based on national accounts) |
1.5 |
-1.3 | 5.6 |
4.6 |
| Import volume index (based on national accounts) |
-3.8 |
-1.3 | 5.9 |
4.2 |
| Balance of international trade in goods (EUR billion) |
0.3 |
1.7 | 2.4 |
3.4 |
| Consumer price index (%) |
17.1 |
3.7 | 3.6 |
2.9 |
| Central bank base interest rate at the end of the period (%) |
11.4 |
6.5 | 5.4 |
3.5 |
| Unemployment rate (%) |
4.1 |
4.6 | 4.2 |
3.4 |
| Current account balance as a percentage of GDP |
0.2 |
1.0 | 1.0 |
1.0 |
| Net lending as a percentage of the GDP |
1.2 |
1.9 | 1.9 |
1.7 |
| ESA balance of public finances as a percentage of GDP |
-6.7 |
-4.5 | -3.7 |
-3.2 |
| Government debt-to-GDP ratio |
73.4 |
73.2 | 72.9 |
72.2 |
Remark: The base rate of the central bank applies to the last quarter of the year.
