Hungarian Economic Forecast: Slow Growth and Rising Inflation Expected for 2025
The Balance Institute projects a 0.8% GDP growth and 4.9% inflation in Hungary for 2025, amid challenges in real wage growth and employment.
The Balance Institute has released its economic forecasts for Hungary, predicting a modest GDP growth of 0.8% and an inflation rate of 4.9% for 2025. The findings, presented on Friday, indicate that this anticipated growth may be influenced by a significant slowdown in economic momentum, with Hungarian GDP reportedly decreasing by 0.2% in the first quarter of 2025 compared to the previous quarter.
Consumption is expected to serve as a key driver of growth, as households gradually rebuild savings lost during previous inflationary shocks.
As real wages are projected to rise in the coming years, an increase in household consumption is likely to ensue.
With the national elections set for 2026, the Balance Institute foresees potential fiscal policy measures aimed at stimulating consumption.
Although significant foreign investments may provide some support for moderate growth in investments, they could simultaneously lead to a deterioration in the trade balance due to increased imports.
The Institute forecasts a GDP growth of 0.8% for 2025 and a slightly higher 1.7% for 2026.
The inflation rate is expected to peak in January 2025 and then gradually decrease through mid-year, before potentially rising again.
The Institute suggests an average inflation rate of 4.9% for 2025, tapering to 4.6% in 2026. This temporary decline is attributed to sluggish domestic demand and a continuing stringent monetary environment.
As the 2026 election approaches, expansionary fiscal and monetary policies could provide a significant boost to inflation.
The National Bank of Hungary faces a challenging situation, as the need for interest rate cuts is countered by persistently high core inflation and currency instability.
Consequently, the new leadership at the National Bank has maintained the current monetary policy.
The Balance Institute anticipates that the central bank's base interest rate will remain unchanged through the fourth quarter of 2025.
Despite a gradual decrease in the value of the forint, it remains overvalued relative to its equilibrium level.
This overvaluation negatively impacts exporters and consumers, cooling economic activity while fostering disinflation.
Moving forward, the Balance Institute expects the forint to remain on a depreciating path, correlating with the need for a higher risk premium from international investors due to growing skepticism about Hungarian economic policies.
The euro/forint exchange rate is projected to fluctuate between 406–416 for 2025 and 412–428 for 2026.
Recent trends in the labor market reflect the economy's weak performance, with both employment and job vacancies having seen slight declines in recent quarters.
Various indicators suggest a significant easing in labor market tightness, prompting the Balance Institute to predict a mild increase in unemployment alongside a projected annual decrease in employment of 0.3-0.4% for 2025.
As a result, the rate of real wage growth is expected to slow considerably.
While economic growth is anticipated to remain positive in 2025 and 2026, the easing of labor market tightness is expected to moderate wage growth further: a median real wage increase of 2.5% is projected for 2025 and 2.6% for 2026 in the private sector.
Household consumption is projected to maintain a growth trajectory, reflecting increases in real wages, declining real interest rates, and improving consumer confidence.
For 2025, the household consumption growth rate is expected to be 2.9%, increasing to 3.2% in 2026, particularly in light of forthcoming consumption-stimulating fiscal measures as the election approaches.
Consumption is expected to serve as a key driver of growth, as households gradually rebuild savings lost during previous inflationary shocks.
As real wages are projected to rise in the coming years, an increase in household consumption is likely to ensue.
With the national elections set for 2026, the Balance Institute foresees potential fiscal policy measures aimed at stimulating consumption.
Although significant foreign investments may provide some support for moderate growth in investments, they could simultaneously lead to a deterioration in the trade balance due to increased imports.
The Institute forecasts a GDP growth of 0.8% for 2025 and a slightly higher 1.7% for 2026.
The inflation rate is expected to peak in January 2025 and then gradually decrease through mid-year, before potentially rising again.
The Institute suggests an average inflation rate of 4.9% for 2025, tapering to 4.6% in 2026. This temporary decline is attributed to sluggish domestic demand and a continuing stringent monetary environment.
As the 2026 election approaches, expansionary fiscal and monetary policies could provide a significant boost to inflation.
The National Bank of Hungary faces a challenging situation, as the need for interest rate cuts is countered by persistently high core inflation and currency instability.
Consequently, the new leadership at the National Bank has maintained the current monetary policy.
The Balance Institute anticipates that the central bank's base interest rate will remain unchanged through the fourth quarter of 2025.
Despite a gradual decrease in the value of the forint, it remains overvalued relative to its equilibrium level.
This overvaluation negatively impacts exporters and consumers, cooling economic activity while fostering disinflation.
Moving forward, the Balance Institute expects the forint to remain on a depreciating path, correlating with the need for a higher risk premium from international investors due to growing skepticism about Hungarian economic policies.
The euro/forint exchange rate is projected to fluctuate between 406–416 for 2025 and 412–428 for 2026.
Recent trends in the labor market reflect the economy's weak performance, with both employment and job vacancies having seen slight declines in recent quarters.
Various indicators suggest a significant easing in labor market tightness, prompting the Balance Institute to predict a mild increase in unemployment alongside a projected annual decrease in employment of 0.3-0.4% for 2025.
As a result, the rate of real wage growth is expected to slow considerably.
While economic growth is anticipated to remain positive in 2025 and 2026, the easing of labor market tightness is expected to moderate wage growth further: a median real wage increase of 2.5% is projected for 2025 and 2.6% for 2026 in the private sector.
Household consumption is projected to maintain a growth trajectory, reflecting increases in real wages, declining real interest rates, and improving consumer confidence.
For 2025, the household consumption growth rate is expected to be 2.9%, increasing to 3.2% in 2026, particularly in light of forthcoming consumption-stimulating fiscal measures as the election approaches.
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