Hungary Economic Outlook
The economy contracted again in quarter-on-quarter terms in Q4 2022. Weaker domestic demand buffeted by soaring inflation, higher interest rates and depressed consumer and business sentiment was behind the reading. The economic picture seems largely unchanged in the first stretch of this year. Business and consumer sentiment remained considerably downbeat in January and February, pointing to weak spending and investment. Moreover, inflation soared in January, eating further into consumers’ pockets. That said, declining gas prices should give some breathing room to the economy in the quarter. Meanwhile, in late February, Scope downgraded Hungary’s credit rating to BBB from BBB+, with a stable outlook. The rating agency mentioned a worsening economic outlook, strong inflationary pressures and reduced policy predictability as the main drivers.
Inflation increased to 25.7% in January from December’s 24.5%. January’s figure was the highest inflation rate since February 1996 and moved further beyond the Central Bank’s 2.0–4.0% target range. This year, inflation should ease—although it will remain elevated by historical standards—fueled by robust wage growth and higher production costs.