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The Equilibrium Institute forecasts inflation of 4.6 percent and real wage growth of 7.1 percent in 2024

According to the Equilibrium Institute’s forecast, although inflation will temporarily rise again in 2024, the purchasing power of wages will increase by 7.1 percent. GDP is expected to grow by 2.4 percent this year, with growth potentially exceeding 3 percent in 2025. As the economy recovers, Hungary’s unemployment rate is projected to decrease in the coming years. The think tank predicts that the central bank’s interest rate reduction cycle will conclude at the beginning of the summer, and the forint-euro exchange rate will continue to depreciate. The budget deficit is anticipated to be above 5 percent of GDP this year, surpassing the government’s target of 4.5 percent.

The Equilibrium Institute predicts GDP growth of 2.4 percent for this year and 3.1 percent for 2025. The think tank expects household consumption and investments to be the main drivers of Hungarian growth. However, due to the weak recovery of the German economy and a resumption of imports, the significant contribution of the foreign trade balance to GDP growth is expected to diminish over the next two years.

According to the think tank, inflation will rise again from the second quarter of 2024 before starting to decline again at the beginning of 2025. The Equilibrium Institute notes that despite the temporary price increase partly due to the base effect and retrospective pricing, most factors point towards moderate inflation in the long term. Based on the forecast of the think tank, the average price increase will be 4.6 percent in 2024, decreasing to 3.1 percent in 2025. Due to global food price trends and a favorable domestic harvest, food prices’ increase is expected to be less than the general inflation rate can be expected in 2024.

According to the Equilibrium Institute, monetary policy is strict both in comparison to past decades and regionally, characterized by high real interest rates and an overvalued euro-forint exchange rate. The think tank notes that although the state of the real economy would permit the central bank to speed up the interest rate reduction cycle, the high interest rates are maintained due to the central bank’s greater focus on exchange rate stability. Despite this, the devaluation of the forint is expected to continue. The Equilibrium Institute forecasts that the average exchange rate of the euro will be between HUF 395-400 in 2024 and HUF 410-419 in 2025.

In the first quarter of 2024, employment continued to rise, with 4.72 million people employed in the economy. In March, unemployment fell again, and the economic activity rate reached an all-time high. The labor market remained tight, albeit at a decreasing rate. Consequently, with the resumption of the economic cycle, employment is forecasted to expand by 0.7 percent per year in the coming years. The Equilibrium Institute expects real wages to rise again by 2024 due to tight labor market conditions and a recovering economy, projecting a 7.1 percent increase in real wages in the private sector. According to the think tank’s economic forecast, the unemployment rate will be 4.3 percent in 2024 and 3.9 percent in 2025.

Although real wages have been increasing since the second half of 2023, households have prioritized savings over consumption. By the fourth quarter of 2023, the gross savings rate of households had risen to 21.6 percent. In 2024, alongside rising real wages and a growing propensity to consume due to the economic recovery, household consumption is expected to increase. The Equilibrium Institute anticipates consumption to grow by 2.7 percent in real terms this year and by 3.5 percent in 2025. The lower-than-expected recovery in consumption has posed challenges for the budget: in 2023, the budget deficit reached 6.7 percent. The deficit is not expected to fall below 3 percent this year either, as this would jeopardize the government’s growth goals. According to the think tank, the deficit could exceed 5 percent of GDP.

For our forecast, we considered the data received until May 5, 2024.

The full forecast is available by clicking here.