2.2% Economic Growth Expected in 2025, but EUR-HUF Exchange Rate Will Fall Within the 412-419 Range
In the third quarter, Hungary’s GDP decreased again, falling significantly by 0.7% compared to the previous quarter, underperforming market expectations. Given the incoming data, lower growth than previously expected is now anticipated for this year: according to the Equilibrium Institute’s forecast, Hungary’s GDP will grow by 0.6% in 2024. However, growth is expected to pick up in the following years: the think tank predicts that GDP growth will reach 2.2% in 2025, and 2.6% in 2026.
In the coming years, consumption could be the main driver of growth: households will have restored the savings lost during the inflation shock by 2024, and the expected real wage growth in the coming years will boost consumption. For the 2026 election year, the Equilibrium Institute expects fiscal policy to take steps to stimulate consumption. Moderate growth in investments could be supported by significant foreign investments, as well as a fast acceleration of EU fund disbursements domestically from mid-year. However, these factors will be accompanied by an increase in imports, which, combined with weak demand in export markets, will result in a deterioration of the trade balance, particularly in 2025.
According to the Equilibrium Institute’s forecast, inflation will rise temporarily before decreasing by mid-2025, then resume a lasting upward trend. The think tank estimates that the average price increase in 2024 will be 3.9%, falling to 3.2% in 2025, and rising to 4.9% in 2026. The decrease next year is influenced by weak domestic demand, a strict monetary policy, and the global disinflationary environment. However, as 2026 approaches, fiscal and monetary policies aimed at stimulating demand could provide a significant boost to price increases.
Monetary policy will remain tight, slowing down the economy. The central bank is in a difficult position: while the state of the real economy would warrant further interest rate cuts, lowering rates further would endanger the stability of the exchange rate, which the National Bank of Hungary (MNB) is placing greater emphasis on than before. The Equilibrium Institute therefore expects that the current central bank leadership will not change interest rates, but the new leadership, starting in March 2025, may ease monetary policy.
According to the Equilibrium Institute’s forecast, the forint will continue to weaken, albeit at a decreasing rate, and will remain overvalued: the real exchange rate remains above its equilibrium level. This hurts exporters and consumers, cooling the economy and supporting disinflation. The overvaluation is also backed by weak export performance and a sharp rise in foreign purchases (the value of purchases made in neighboring countries’ grocery stores doubled between 2022 and 2023). The think tank expects the forint to remain on a weakening path in the future, gradually correcting its current overvaluation, with the disappearance of the attractive interest rate differential and higher risk premiums required by international investors due to a lack of confidence. The forecast is that in 2025, the EUR-HUF exchange rate will range between 412–419, and in 2026, between 418–432.
The weak performance of the real economy is also reflected in the labor market: in the third quarter, employment slightly decreased, and unemployment increased. Several indicators suggest that labor market tightness has eased significantly. The share of job vacancies (calculated by dividing the number of vacant positions by the total number of filled and vacant positions), which measures labor market oversupply, has been continuously decreasing since the second quarter of 2022, from 3.0% to 2.2%. This indicates that there are fewer opportunities for job seekers, and employees’ bargaining power is weakening in wage negotiations. At the same time, the data shows how companies are adapting “internally” to weak demand: despite an increase in headcount, the total number of hours worked in the private sector decreased by nearly 5% year-on-year in the first quarter—similar to the declines seen during the 2008 financial crisis and the COVID-19 crisis. In the coming years, as the economic recovery is expected to pick up, the Equilibrium Institute forecasts that employment will grow by 0.1–0.2% annually, and unemployment will increase slightly in 2025.
For these reasons, the Equilibrium Institute expects that wage growth in the coming years will fall short of the government’s expectations. With the expected economic growth, wage growth will remain positive in 2025 and 2026, but due to the easing of labor market tightness, the pace of wage growth will slow down: the think tank forecasts median real wage growth of 9.6% in the private sector in 2024, 4.3% in 2025, and 3.0% in 2026.
Although consumption is increasing, its growth dynamics will still lag behind real wage increases, with households showing a high savings rate. In the second half of 2024 and 2025, due to rising real wages, declining real interest rates, and improving consumer confidence, the savings rate will fall, and consumption will continue to rise. The Equilibrium Institute forecasts that real consumption will grow by 2.8% in 2024, 3.7% in 2025, and 4.2% in 2026. The slower-than-expected recovery in consumption, along with high financing costs for public debt, has placed the budget in a difficult position. The Equilibrium Institute expects a budget deficit of around 5% this year, exceeding the 4.5% deficit target.
The study was based on data available up to November 12, 2024, which was incorporated into the economic forecasting model.
The full forecast is available by clicking here.
