OECD Economic Outlook, Volume 2025 Issue 2

Hungary

Due to subdued activity in 2024 and early 2025, Hungary’s GDP growth will reach 0.3% in 2025 and pick up to 1.9% in 2026 and 2.3% in 2027. Private consumption, supported by strong real wage growth and personal income tax cuts in 2026, will be the main engine of growth. After dropping by around 20% over the last two years, investment is expected to broadly stabilise in 2026 and rebound in 2027. Exports are projected to pick up, but sluggish growth in the euro area, particularly Germany, will bear down on the outlook for Hungary.

While core inflation is still above 5%, monetary policy is only projected to ease at a moderate pace to ensure that inflation durably reverts to 3%. While fiscal consolidation has been significant since 2022, fiscal policy is expected to become more accommodative from 2026. Reverting to a tighter fiscal policy will be necessary to prepare for rising spending related to ageing, and climate mitigation and adaptation.

Economic activity is weak

Growth has been subdued since mid-2022. While strong real wage growth is supporting private consumption, investment has declined by 18% since early 2023 amid low business confidence, low capacity utilisation and trade policy uncertainty. Headline inflation has declined from 5.5% in January 2025 to 4.3% in October, but core inflation excluding food and energy remains at 5.4%. Despite subdued economic activity, unemployment rose only moderately to 4.5% in September. Nevertheless, the labour market is becoming less tight as job vacancies have decreased by 20% since early 2025. As a ratio to unemployment, they are now below pre-pandemic levels.

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.

Statlink

Hungary: Demand, output and prices

Statlink

While only 5% of Hungarian exports of goods and services are directly shipped to the United States, Hungarian firms are integrated into global value chains of European countries that are also exposed to US tariffs, especially in the automotive sector. Higher US tariffs on EU goods will thus indirectly weigh on Hungary through reduced activity in the European Union, representing 65% of Hungarian exports.

Monetary policy is expected to continue easing moderately, and fiscal policy to become more accommodative

Given the continued strong underlying inflation developments, the Central Bank has kept its policy rate at 6.5% since September 2024. Looking ahead, it is expected to implement further policy rate cuts at a moderate pace to ensure that inflation reverts back to its 3% target. The policy rate is projected to settle around 5.5% by the end of 2027. The headline fiscal deficit is expected to stabilise at 5.0% in 2025 and 2026 before narrowing to 4.5% in 2027, amid personal income tax (PIT) cuts and one-off public wage premia, but also declining public investment and debt servicing costs as a share of GDP.

Growth is expected to strengthen, mainly supported by private consumption

GDP growth is expected to increase to 1.9% in 2026 and 2.3% in 2027, while inflation is projected to revert to the 3% target by mid-2027. Private consumption will be supported by strong real wage growth and PIT cuts in 2026. Despite the decline in investment since early 2023, banks do not anticipate any quick rebound in corporate credit and public investment is constrained by blocked EU funds. Investment is set to broadly stabilise in 2026 and to rebound progressively in 2027. Exports are projected to pick up but will remain closely connected to external demand growth, especially from Germany. In theory, the availability of new manufacturing capacity may provide a further boost to Hungarian exports over 2026-27. Nevertheless, industrial capacity utilisation is low and the potential of the new factories will be fully exploited only if external demand picks up significantly.

Structural reforms are needed to improve fiscal sustainability and growth

Reforming public pensions – for example by tightening eligibility conditions and adjusting benefit levels – would limit the increase in ageing-related spending, which is projected to exceed 5% of GDP by 2070. However, financing future pensions will also require additional fiscal space, which calls for consolidation. Restructuring energy support by moving from price caps to targeted cash transfers to vulnerable households would increase incentives for saving energy and renovating dwellings, reduce the exposure of public finances to fluctuations in energy prices, and lower dependence on energy imports. Simplifying administrative procedures and reducing costs for business creation, improving the insolvency framework to facilitate the reallocation of capital across firms, and ensuring a favourable business environment by strengthening the fight against corruption would support business dynamism, competition and productivity, which is lagging behind OECD peers.