Following a contraction in 2023, GDP growth is projected to increase gradually to 0.6% in 2024, 2.1% in 2025 and 2.9% in 2026. Private consumption, supported by increasing real wages amidst declining inflation, will be the main engine of growth. Private investment is expected to rebound gradually as macroeconomic and financial conditions improve. Exports will be supported by a pick-up in demand from Hungary’s main trading partners, but imports will also increase.

The on-going monetary policy easing is expected to continue at a moderate pace to ensure that inflation reverts back to target. Fiscal consolidation is under way and should continue in order to build fiscal space to meet future spending pressures related to ageing and the green transition. Reaching an agreement on the delivery of the EU funds that remain subject to rule-of-law reforms would strengthen investor confidence.

Recovery from a recession in late 2022 and early 2023 has been sluggish, with alternating quarters of positive and negative readings. GDP contracted again in the second and third quarters of 2024, driven down by the weak performance of agriculture, industry and construction. Business confidence is low in most sectors, but is slowly improving in services, along with consumer confidence. Low confidence and capacity utilisation, along with economic uncertainty, are dragging down private investment. Headline inflation declined significantly from over 25% in early 2023 to 3.2% in October 2024, supporting real wage growth. Nevertheless, core inflation excluding energy and food items remained at 4.6% in October. Despite subdued economic activity, the labour market remains robust. Unemployment rose from 3.3% in the second quarter of 2022 to 4.7% in the third quarter of 2024, but this was mainly due to increasing labour force participation. Job vacancies remain historically high, especially in manufacturing, ICT, financial services, administrative and support services, public administration, education and health.

The global environment has a mixed impact on the Hungarian economy. Global oil and food prices are expected to remain lower over 2024-26 than in 2022-23, thus supporting ongoing disinflation. At the same time, slow growth in Europe, especially Germany, is holding back exports.

As inflation declined, the Central Bank significantly lowered its effective policy rate, from 18% in April 2023 to 6.5% in September 2024. It is expected to continue with gradual and small policy rate cuts, taking into account persistent services inflation and developments in major economies. The policy rate is expected to decline to 5% in 2026. The headline fiscal deficit is expected to narrow to 4.9% in 2024, 4.3% in 2025 and 3.8% in 2026, which is still higher than before the pandemic. Abstracting from business cycle effects and interest payments, fiscal consolidation since 2023 is estimated to have continued in 2024, supported by lower energy subsidies among other factors. A broadly neutral fiscal stance is assumed over 2025-26.

GDP growth is expected to increase gradually to 0.6% in 2024, 2.1% in 2025 and 2.9% in 2026, mainly supported by private consumption. Lower inflation is contributing to a pick-up in household real incomes, and saving rates could decline gradually as household assets return to their long-run level compared to income. After an expected decline of 11% in 2024, investment is projected to rebound progressively over 2025-26, along with improving financial and economic conditions. Given ongoing fiscal consolidation, public consumption and investment will contribute little to growth. After a decline in 2024, exports are projected to pick up over 2025-26 as external demand strengthens, but imports will rise in parallel. Employment growth and a moderate increase in labour force participation over 2025-26 are expected to bring unemployment back to 3.8% by the end of 2026. The 21-Point Action Plan announced in October 2024 to support home renovation and the acquisition of new properties may contribute to higher-than-expected residential investment. Moreover, significant foreign direct investments, mainly in relation to electric mobility, have increased export capacity, and a rebound of the currently subdued electric vehicle market would support exports. On the contrary, a failure to reach an agreement with the EU regarding the release of EU funds that remain blocked due to rule-of-law concerns may negatively affect investor confidence, capital flows, lead to renewed pressures on the exchange rate, and harm GDP growth.

Reforming public pensions would limit the increase in ageing-related spending, which is projected to exceed 5 percentage points of GDP by 2070 under current legislation. Beyond possible options to tighten eligibility conditions and adjust benefit levels, financing future pensions will require additional fiscal space, which calls for consolidation. Productivity growth could be bolstered by strengthening competition in the energy, transport, professional services and telecommunication sectors. Lower telecommunication prices and a wider diffusion of digital skills would accelerate the digitalisation of firms and help Hungarian firms, especially SMEs, to bridge the digital gap with peer countries. There is room to further increase the employment rates of women and low-skilled workers to alleviate labour shortages. This could be done by expanding access to early childhood education and facilities, and further decreasing labour taxes for low-wage workers.