Hungary’s economy is still facing sluggish momentum and only slow progress in reducing inflation, according to the latest Inflation Report from the National Bank of Hungary (MNB).
The central bank now anticipates that Hungary will achieve its 3% inflation target only by early 2027.
Meanwhile, GDP growth for this year has been sharply downgraded to 0.8%, down from the earlier forecast of 2.4%. Growth is expected to pick up modestly to 2.8% in 2026, which remains significantly lower than previous estimates.
Robust consumer spending is expected to continue playing a key role in driving growth throughout the forecast period, fuelled by rising real wages and government tax cuts, the report stated.
In addition, major industrial developments, such as the opening of CATL, BMW, and BYD factories in the second half of 2025, are projected to add 0.8 percentage points to GDP growth next year, according to the report.
The MNB attributed the revision to the drop in first-quarter GDP and the deteriorating global environment, marked by escalating geopolitical tensions and trade conflicts.
The central bank also highlighted ongoing volatility in global commodity prices and a significant rise in trade protectionism as contributing factors.
Labour market pressures are beginning to ease, as employment figures indicate a slowdown, although wage growth continues to be strong. The report also pointed to weak corporate investment and declining demand for business services, BNE IntelliNews reports.
Despite recent signs of easing inflation, core issues persist. The central bank warned that underlying inflation in the services sector would surpass 7% without price controls, while prices for industrial goods are increasing faster than preferred.
The report projects average annual inflation rates of 4.7% for 2025, 3.7% for 2026, and 3.0% for 2027.
At last week’s rate-setting meeting, monetary policymakers underscored the need to maintain a strict policy stance to keep inflation expectations anchored and reach the 3% target in the medium term. The Monetary Council also decided to keep the base interest rate steady at 6.5%, where it has remained since September.
The MNB forecasts Hungary’s budget deficit for 2025 to range between 4.1% and 4.4% of GDP, well above the 3% Maastricht limit and slightly higher than the Economy Ministry’s latest estimate of 4.1%. For 2026, the central bank expects only a modest reduction, with the deficit falling to between 3.7% and 4%, which still poses a risk of missing the official target.
Moreover, Hungary’s gross government debt was 73.5% of GDP at the end of 2024 and has already increased to 75.5% by the end of the first quarter of 2025. This rise was mainly driven by substantial net debt issuance, which has already surpassed half of the annual planned amount.