Economic Outline

Economic Indicators

Resuming the trends observed in recent years, Hungary's GDP rebounded sharply after the softening of the COVID-19 pandemic. Nevertheless, the country’s economy contracted for four consecutive quarters from mid-2022 to mid-2023 due to high inflation, tighter fiscal and monetary policies and sluggish external demand. Hungary entered a technical recession once again in Q3 2024. Consumption grew steadily due to a resilient labour market, high wage increases, and monetary policy accommodation. However, investment remained weak amid postponed public projects and declining business sentiment. Exports were hampered by subdued demand from trading partners, particularly for machinery and transport equipment. For the year as a whole, growth was estimated at 0.6% by the EU Commission, with a projection of 1.8% in 2025 and 3.1% in 2026, driven by strong consumption supported by real income growth and a declining household saving rate. Investment growth may face challenges due to uncertainties in the automotive sector. Exports are expected to rise gradually, boosted by foreign investment in manufacturing, while recovering domestic demand is likely to increase imports and narrow the current account surplus.

Hungary's budget deficit fell from 6.7% of GDP in 2023 to 5.4% in 2024, driven by reduced utility subsidies, postponed public investments, and a moderate tax revenue rebound. The net cost of energy price mitigation dropped from 1.6% to 0.9% of GDP. The deficit is expected to narrow further to 4.6% in 2025 and 4.1% in 2026. Fiscal policy is projected to be expansionary, with subdued primary expenditure growth and declining interest costs. Capital spending is set to rise gradually, while the phasing out of windfall taxes may reduce revenue by 0.6 pps. of GDP in 2025. Hungary's debt-to-GDP ratio reached 74.5% in 2024, driven by a high budget deficit and the Budapest airport purchase. It is expected to stay at 74.5% in 2025 before declining to 73.8% in 2026, supported by strong nominal GDP growth. HICP inflation fell from 17.0% in 2023 to 3.0% in September 2024, as the effects of previous energy and food price hikes and supply chain issues eased. However, inflation excluding energy and food remained high at 5.6%, driven by past inflation impacts on services, strong wage growth, rising consumer demand, and currency depreciation. Underlying inflation is expected to gradually slow as commodity prices and wage growth decrease. HICP inflation is forecast to decline from 3.8% in 2024 to 3.6% in 2025 and 3.2% in 2026 (data EU Commission).

The unemployment rate rose to 4.4% in 2024, up from 4.1% the previous year (IMF). As the economy recovers, labour demand is expected to rise, leading to a gradual decline in the unemployment rate. While the labour market will tighten, nominal wage growth is projected to ease in 2025 and 2026 as the impact of past minimum wage increases fades. Overall, GDP per capita in Hungary was estimated at USD 49,150 in 2024, still below the EU average (USD 62,660 – IMF), while 20% of the population was at risk of poverty or social exclusion as of 2023 (HCSO, latest data available).

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