European Commission Forecasts Accelerating Economic Growth in Hungary

While the European Commission expects the Hungarian economy to grow slightly faster this year than 2024, the institution’s spring forecast predicts that it will only really pick up speed next year, Világgazdaság reports.

The European Commission publishes a detailed report on the economic outlook twice a year, and its spring forecast published on Monday predicts moderate growth for Hungary this year, with a potential fall in both inflation and unemployment.

Hungary’s gross domestic product (GDP) is expected to grow by 0.8 percent this year, up from half a percent last year, and by 2.5 percent in 2026, as consumption picks up and investment and exports gradually recover,

according to the report. Meanwhile, the European Union economy is expected to expand by an average of 1.5 percent next year, continuing the catching-up process. The report also points out that Hungary’s recovery will also require an improvement in the European economy.

Wage growth and savings spending already supported consumption last year, while investment fell amid business uncertainties and a slowdown in public investment, and exports were sluggish due to weak performance of machinery and vehicle exports. In the first quarter of this year, economic activity fell by 0.2 percent, partly due to a decline in industrial production, Brussels experts said in the report.

Private consumption remained the main source of growth, driven by rising real incomes and the extension of personal income exemptions, they said. Investment, especially corporate investment, may remain limited this year but will pick up in 2026, as global uncertainties ease and government-backed construction gains momentum. Exports are also finding their feet as demand may pick up and new production starts to come on the back of FDI (foreign direct investment).

Higher domestic demand is expected to boost imports, therefore the Commission’s experts expect a slight deterioration in Hungary’s current account balance: last year’s surplus of 2.4 percent of GDP is forecast to fall to two percent this year and 1.5 percent next year.

The Commission forecasts that the

Hungarian unemployment rate (4.5 percent last year) could fall to 4.3 percent in 2026.

Meanwhile, wages could rise rapidly this year and next, helped by a nine percent increase in the minimum wage this year, a tight labor market, and public sector wage increases.

Domestic demand and rising food prices will keep inflation high this year, reads the report. Although profit margin controls and the agreement between the government and the main service providers are temporarily moderating inflation, they could adjust prices upwards as the measures expire at the end of the year and next year.

The report forecasts average inflation of 4.1 percent this year, but next year the rate could fall to 3.3 percent, even lower than last year’s 3.7 percent.

This is based on the assumption that commodity and energy prices will fall and wage growth will be more moderate.

Hungary’s budget deficit, which fell sharply last year to 4.9 percent of GDP from 6.7 percent in 2023, on the back of lower energy subsidies and public investment, could shrink slightly further this year to 4.6% of GDP.

Next year, however, the deficit could increase slightly to 4.7 percent.

Among the reasons for this could be the reduction in personal income tax due to the tax exemption for mothers and an increase in the family tax allowance. Growth and domestic policy uncertainties also pose risks to the budget, the report says. The public debt-to-GDP ratio rose to 73.5 percent last year due to the weakening forint and the state purchase of Budapest Airport, and could rise further to 74.5 percent this year due to interest payments due, but could fall to 74.3 percent next year, the Commission forecasts.

Via Világgazdaság, Featured image: Hungary Today