OECD Economic Outlook, Volume 2025 Issue 1

Hungary

After growing by 0.5% in 2024, GDP is projected to increase by 0.9% in 2025 and 2.4% in 2026. Private consumption, supported by real wage growth, will be the main engine of growth, especially in 2025. Following a significant decline in 2024, investment is expected to increase gradually but will remain hampered by weak economic prospects and trade policy uncertainty. Exports are projected to pick-up in line with demand from Hungary’s main trading partners, but growth in the euro area, particularly Germany, is a key risk for the economy.

Monetary policy easing is expected to continue, but at a moderate pace to ensure that inflation reverts back to target. While necessary to prepare for rising ageing-related spending needs, fiscal consolidation is weakening. Better financing conditions, lower trade policy uncertainty and full implementation of recent public integrity reforms will be key to support a rebound in investment. Reforming the insolvency framework would facilitate capital reallocation towards productive investments. Improving regulations in energy, transport and professional services would encourage business creation.

Economic activity is weak

Economic growth has been volatile since 2023, with alternating quarters of positive and negative GDP growth. In 2024 as a whole, GDP growth was only 0.5% and GDP declined by 0.2% in the first quarter of 2025. While strong real wage growth supported private consumption, there was a strong decline in investment due to low business confidence, low capacity utilisation and tight financing conditions as monetary policy remained restrictive to fight remaining inflationary pressures. Headline inflation ticked up to 5.6% in February 2025 due higher food and energy prices. It was still 4.2% in April and core inflation remains above 5%. Despite subdued economic activity, the labour market is robust. Unemployment declined to 4.2% in March 2025 and job vacancies are high.

Hungary

1. National consumer price index excluding food and energy.

2. Data refer to average gross earnings of full-time employees in the private sector.

Source: OECD National Accounts database; OECD Consumer Prices database; and Hungarian Central Statistical Office.

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Hungary: Demand, output and prices

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While only 5% of Hungarian exports are directly shipped to the United States, Hungarian firms are integrated into global value chains which ultimately serve the US market, especially in the automotive sector. Higher US tariffs on EU goods will thus indirectly weigh on Hungary through reduced activity in the European Union and Germany, representing 65% and 21% of total Hungarian exports, respectively.

Monetary policy is expected to continue easing at a moderate pace and the fiscal stance to weaken in 2026

Given persistent services inflation and exchange rate weakening, the central bank has kept its policy rate at 6.5% since September 2024. Looking ahead, it is expected to implement gradual and small policy rate cuts to ensure that inflation reverts back to the 3% target. The policy rate is projected to settle around 5.5% by the end of 2026. The headline fiscal deficit is expected to narrow from 4.9% of GDP in 2024 to 4.2% in 2025 and 4.0% in 2026, which is still higher than before the pandemic. Abstracting from business cycle developments and interest payments, the fiscal stance is projected to be neutral in 2025 and to weaken in 2026, after two years of significant fiscal consolidation.

Growth is expected to strengthen, mainly supported by private consumption

GDP growth is expected to increase gradually to 0.9% in 2025 and 2.4% in 2026. Private consumption will be supported by strong real wage growth, especially in 2025, and the household saving rate returning to its long-run level after a significant increase since the pandemic. Inflation is projected to be slightly above 3% by the end of 2026. Investment is expected to rebound progressively but will be hampered by low business confidence, low capacity utilisation, and significant trade policy uncertainty. Exports are projected to pick up but will remain closely connected to external demand from Hungary’s main trading partners, especially Germany. Economic activity in these countries is a key risk to the outlook. The availability of new manufacturing capacity, especially in the automotive sector, may provide a further boost to Hungarian exports over 2025-26, but industrial capacity utilisation is currently low and the potential of the new factories will be fully exploited only if external demand picks up significantly.

Structural reforms would improve fiscal sustainability and long-term growth

Reforming public pensions would limit the increase in ageing-related spending, which is projected to exceed 5 percentage points of GDP by 2070 under current legislation. Beyond possible options to tighten eligibility conditions and adjust benefit levels, financing future pensions will require additional fiscal space, which calls for consolidation. As a share of GDP, investment remains higher than the EU average but has significantly weakened in recent years. Better financing conditions, reduced trade policy uncertainty, and fully implementing recent reforms to promote public integrity and bolster investor confidence will be key to reverse this trend. Improving the insolvency framework would also facilitate the reallocation of capital across firms and the financing of productive investments. Improved regulations in the energy, transport, professional services and telecommunication sectors would strengthen competition and support the entry of new firms and investments in these sectors.