Looking at global developments, the decline and expected further moderation in global oil prices should ease external and internal inflationary pressures. Weakening German growth prospects may have a downward impact on Hungarian exports in the period ahead. Geopolitical tensions such as the Russia-Ukraine war or the conflict in Gaza could be a cause for concern.
Inflation was 17.1% in 2023, mainly due to high core inflation. Over the forecast horizon, inflation could ease steadily thanks to declining external inflationary pressures, an expected moderation in producer prices and a high base in 2022. Some moderation or even an increase in year-on-year dynamics is expected this year, but inflation could still be lower than in the past at 4.4%. In 2025, the CPI could return to the target range, with an average inflation rate of 3.7%, according to our calculations.
As disinflation strengthened, the Magyar Nemzeti Bank started to cut its policy rate in early 2023, reaching the level of the base rate in September. We expect monetary policy to ease further this year, with inflation returning to the central bank’s target range of 3±1% in 2025 at the earliest.
Economic growth is expected to be subdued at 2.7% this year, followed by 4.4% next year. Slowly recovering domestic demand will be the main expansion driver in both 2024 and 2025. As inflation moderates slowly and real wages increase, consumption is expected to rise gradually. Consumption could rise by 2.6% this year and 4.0% next year. Investment could be supported in particular by easing interest rate conditions, the arrival of EU funds and strengthening business trust. In 2024 (after -14.4% in the previous year), investment volumes could rise by 9.6%. Investment could grow by 4.8% in 2025.
Net exports may not support Hungary’s economic growth in 2024, but they will from 2025 onwards.
Domestic exports heavily depend on German economic output, with negative news at the beginning of the year carrying downward risks. Exports could grow by 5.9% this year and 7.7% next year. Imports, supported mainly by consumption and export growth, could rise by 7.6% in 2024 and 7.5% in 2025.
The past year brought changes in the labour market as well. In 2023, employment continued to grow in line with the previous trend, while unemployment also started to rise slightly, reversing the previous downward trend. 2023 saw burdens on households rise, mainly due to an increase in overall price levels. This process encouraged more previously inactive households to re-enter the labour market. Last year’s figures show that nearly half of those entering the labour market were able to find a job within a short time, while the other half are slower to find a job. We forecast that the changes observed last year will continue this year, with employment continuing to expand and unemployment rising, the latter to 4.4%, and the market returning to its previous state by 2025, when the unemployment rate will fall back to 3.2% while employment remains high.
Our calculations suggest that the ESA deficit on an accrual basis reached 6.3% of GDP at the end of 2023, but this could still be affected by the accounting of EU funds received at the end of the year. The government forecast showed that gross government debt as a share of GDP fell to 73.4% at the end of last year. In 2024, the ESA general government deficit could reach 4.5% of GDP, in line with government plans that have not yet been officially released, but there are already material downside risks to the deficit target.
We expect public debt to fall further to 72.4% of GDP by the end of the year.
Table: Forecast of Századvég Konjunktúrakutató
|
2023 |
2024 |
2025 |
|
| Gross domestic product (volume index) |
-0.7 |
2.7 |
3.4 |
| Household final consumption expenditure (volume index) |
-2.2 |
2.6 |
4.0 |
| Gross accumulation (volume index) |
-14.4 |
9.6 |
4.8 |
| Export volume index (based on national accounts) |
-0.1 |
5.9 |
7.7 |
| Import volume index (based on national accounts) |
-5.1 |
7.6 |
7.5 |
| Balance of international trade in goods (EUR billion) |
0.4 |
2.2 |
6.9 |
| Consumer price index (%) |
17.1 |
4.4 |
3.7 |
| Central bank base interest rate at the end of the period (%) |
11.4 |
6.5 |
5.7 |
| Unemployment rate (%) |
4.1 |
4.4 |
3.2 |
| Current account balance as a percentage of GDP |
1.0 |
1.6 |
3.2 |
| Net lending as a percentage of the GDP |
3.3 |
3.8 |
5.2 |
| ESA balance of public finances as a percentage of GDP |
-6.3 |
-4.5 |
-3.7 |
| Government debt-to-GDP ratio |
73.4 |
72.4 |
71.5 |
Remark: The base rate of the central bank applies to the last quarter of the year.
