Economic Growth of 2.0% Expected in 2025 with Accelerating Inflation and Rising Unemployment
In the fourth quarter of 2024, the Hungarian economy emerged from recession, with GDP increasing by 0.5% compared to the previous quarter. The Equilibrium Institute forecasts GDP growth of 2.0% in 2025 and 2.4% in 2026. In the coming years, consumption is expected to drive economic growth, as households have rebuilt savings lost during the inflationary shock of 2024. Consequently, anticipated real wage growth (see below) will provide room for increased consumer spending. As the 2026 elections approach, the Equilibrium Institute expects fiscal policy to take steps to further stimulate consumption. However, a rise in imports, weak demand in export markets, and escalating trade policy tensions are likely to deteriorate Hungary’s trade balance.
Inflation Outlook
According to the Equilibrium Institute’s forecast, inflation will slow after peaking in January 2025 but is expected to rise again in the second half of the year. The institute projects an average inflation rate of 4.1% in 2025, increasing to 5.0% in 2026. The temporary slowdown will be driven by weak domestic demand, a still relatively tight monetary policy, and a global disinflationary environment. However, as 2026 approaches, fiscal and monetary policies aimed at stimulating demand could significantly accelerate price increases.
Monetary Policy and Exchange Rate Expectations
The central bank faces a challenging dilemma: while the state of the real economy would justify continued interest rate cuts, further reductions could jeopardize exchange rate stability—an area of growing importance for the Hungarian National Bank (MNB). As a result, the Equilibrium Institute expects the current central bank leadership to maintain interest rates at their current level. However, the new leadership, set to take office in March 2025, may adopt a more accommodative monetary policy.
The Equilibrium Institute forecasts that the Hungarian forint will remain overvalued, albeit to a decreasing extent. The real exchange rate remains above its equilibrium level, which negatively impacts both exporters and consumers, thereby cooling the economy and supporting disinflation. However, the institute expects the forint to follow a weakening trajectory due to the gradual correction of its overvaluation, the diminishing interest rate differential, and heightened risk premiums demanded by international investors due to uncertainty over Hungarian economic policy. In 2025, the EUR/HUF exchange rate is expected to fluctuate between 409–422, while in 2026, it is projected to range between 417–435.
Labor Market Developments
The weak performance of the real economy is increasingly evident in the labor market. In the third quarter of 2024, employment slightly declined, and unemployment rose, indicating a significant easing of labor market tightness. Despite the expected economic recovery, the Equilibrium Institute projects only a modest employment increase of 0.0–0.1% per year, alongside a slight rise in unemployment in 2025.
Although the labor market demonstrated remarkable resilience in previous quarters, signs of strain have emerged. In the fourth quarter of 2024, the number of employed persons declined by 25,200 year-on-year—the first significant drop since Q1 2021. While the labor force had been expanding despite demographic headwinds, this trend reversed in late 2024 as the decline in the working-age population was no longer offset by new labor market entrants. Unemployment increased by 9,100 year-on-year, pushing the unemployment rate to 4.4%.
The economic recovery is expected to have only a limited impact on employment levels. The Equilibrium Institute projects employment growth of 0.0–0.1% annually in 2025 and 2026. Despite the improving economic outlook, unemployment is expected to rise further before declining again, reaching 4.6% in 2025 before falling to 4.2% in 2026.
Wage Growth and Household Consumption
Given these trends, the Equilibrium Institute anticipates that wage increases may fall short of expectations in the coming years. While economic recovery will sustain wage growth in 2025 and 2026, the pace of growth is expected to slow due to easing labor market tightness. In the competitive sector, median real wages are projected to rise by 3.8% in 2025 and 3.4% in 2026.
Although household consumption is set to grow, its expansion is expected to lag behind real wage increases due to high household savings rates. While substantial government bond payouts are expected in 2025, they are unlikely to translate into a significant boost in consumption, as these bonds are primarily held by households in the highest income decile. However, as real wages rise in 2025, household caution may gradually ease. With the 2026 elections approaching, fiscal policy is also expected to introduce measures to stimulate consumption. As a result, household consumption is projected to remain on an upward trajectory, growing by 3.9% in real terms in 2025 and 3.7% in 2026.
Data and Full Forecast
This forecast is based on economic modeling incorporating data available as of February 3, 2025.
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