Hungary’s economic forecast: inflation, growth, and exchange rates

The Equilibrium Institute (Egyensúly Intézet) has unveiled its comprehensive economic forecast for Hungary. It outlined expectations for inflation, GDP growth, and the EUR/HUF exchange rates.

Inflationary trends

Despite a 0.6% GDP contraction this year, the Equilibrium Institute anticipates a significant slowdown in inflation, a resurgence in economic growth, and a gradual depreciation of the forint against the euro. According to Economx, the Institute’s analysis suggests that average price increases are projected to be 17.5% in 2023. Nevertheless, there is optimism for a decline in inflation rates in the subsequent years. Forecasts indicate a drop to 5.7% in 2024 and a further decrease to 3.6% in 2025. Rising fuel prices are expected to contribute to inflation, fueled by geopolitical uncertainties and increased excise taxes on oil. However, the Institute predicts a lower rate of increase in food prices compared to overall inflation in 2024.

Monetary policy and exchange rates

The report indicates that the central bank may achieve its inflation target in the second half of 2025. This projected decline in inflation rates could provide room for the central bank to lower the policy rate. The forint-euro exchange rate is anticipated to depreciate gradually, with an average range of HUF 393-403 in 2024 and HUF 406-419 in 2025.

Consumption trends

Following a surge in consumption growth in the previous year, the Equilibrium Institute expects real consumption to contract by over 2% in the current year. Despite this setback, the report suggests a potential rebound in household consumption in 2024, driven by a disinflationary trend and positive real wage growth as the Hungarian economy recovers. Consumption is forecasted to grow by 2.2% in real terms and by 3.5% in 2025.

Financial challenges and budget deficit

The unexpected decline in consumption has presented challenges for the budget, but the government is hesitant to embark on major financial adjustments in the coming year to avoid jeopardising economic growth. The Institute predicts a budget deficit above 3% in 2024, surpassing the government’s committed target of 2.9%.

GDP growth and labor market

Despite the current economic challenges, the forecast indicates a positive trajectory for Hungarian GDP in the coming years. Projections suggest a potential expansion of 3.2% in 2024 and 3.1% in 2025. The prediction expects consumption and increased investment to be key drivers of economic growth. The labor market will remain dynamic, with an unemployment rate of 3.9% this year and a slight decrease to 3.7% in the following year. Anticipated double-digit wage growth and positive real wage dynamics result from tight labor market conditions and a boost in economic activity.

As Hungary navigates the challenges posed by the current economic landscape, the Equilibrium Institute provides a roadmap that highlights the potential for recovery.

Source: Economx