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The Equilibrium Institute forecasts GDP growth of 2.9 percent and inflation of 4.3 percent in 2024


After a turbulent and recessionary 2023, the Equilibrium Institute anticipates a resumption of growth this year, accompanied by low inflation, declining interest rates, and a depreciating forint-euro exchange rate. While the tightness of the labor market is easing, the revival of economic growth will drive an increase in real wages this year, and the unemployment rate is expected to resume its downward trajectory. However, the budget deficit is projected to reach over 5 percent this year, deviating significantly from the 2.9 percent assumption outlined in the budget law.

According to the forecast of the Equilibrium Institute, Hungarian GDP will expand by 2.9 percent in 2024 and by 3.0 percent in 2025. The Equilibrium Institute expects that household consumption and investments will be the engines of Hungarian growth. Due to the weakening of the German economy and rising imports, the previous years’ significant positive contribution of the foreign trade balance to GDP growth is expected to cease this year and next. The think tank expects a decrease in the pace of disinflation in the coming quarters, followed by a slight, temporary rise in inflation. Thus, overall, the average price increase in 2024 will be 4.3 percent, and inflation will decrease to 3.4 percent in 2025. As a result of global food price trends and the favorable domestic harvest, the Equilibrium Institute expects a more moderate increase in food prices than general inflation in 2024. The central bank will reach the 3 percent inflation target in 2025.

According to the Equilibrium Institute, monetary policy is exceptionally strict both compared to the past decades and in regional comparison: it is characterized by high real interest rates and an overvalued euro-forint exchange rate. A faster-than-expected drop in inflation will allow the central bank to accelerate its rate-cutting cycle. According to the forecast of the Equilibrium Institute, the average exchange rate of the euro will be in the range of HUF 393-401 in 2024 and HUF 403-418 in 2025.

The number of vacancies per unemployed person decreased to 0.36 by the fourth quarter of 2023 from 0.64 in mid-2022. This indicator last showed a similar value in 2017, indicating that the labor market remains tight, albeit at a decreasing rate. Therefore, with the economy gaining momentum, the Equilibrium Institute expects employment to increase by 0.6 percent by 2024 and by 0.8 percent by 2025. For 2024, the think tank predicts a resurgence in real wages due to the tight labor market conditions and the recovering economy: in 2024, real wages in the private sector are projected to increase by 5.5 percent. According to the economic forecast of the Equilibrium Institute, the unemployment rate is expected to be 3.9 percent in 2024 and 3.8 percent the following year.

In 2023, extreme inflation caused a decrease in purchasing power, resulting in a more significant drop in household consumption than experienced during the COVID epidemic. However, according to the Equilibrium Institute, this year and next year, the resumption of economic growth and the increase in real wages will lead to an increase in consumption. The larger-than-expected decline in consumption has posed challenges for the budget: in 2023, the budget deficit is projected to surpass the 5.2 percent target, which was raised for the second time, and exceed 6 percent. Additionally, the deficit is unlikely to fall below 3 percent this year, as doing so would jeopardize the government’s growth objectives. According to the think tank, the deficit is expected to remain close to 5 percent.

In 2024, Hungary is poised to receive more EU funds than previously anticipated by most analysts. With the easing of monetary conditions, the disbursement of EU funds, and the acceleration of major foreign direct investment (FDI) projects, the Equilibrium Institute anticipates an increase in investments this year and next. According to the economic forecast of the think tank, we can expect an increase of 6.6 percent in 2024 and 5.4 percent in 2025 in terms of investments.

For our forecast, we considered the data received until February 15, 2024.

The full forecast is available by clicking here.