Hungary Economic Outlook
Year-on-year GDP contracted, and activity shrank for the third consecutive period in quarter-on-quarter terms in Q1. The annual fall was driven by a downturn in household spending amid elevated inflation and downbeat sentiment, as well as by contracting investment activity. Moving into the current quarter, momentum has likely remained subdued. Consumer confidence was deeply pessimistic in April-May, while both headline and core inflation dipped but remained above 20% in April, which has seemingly buffeted household spending. Moreover, in April-May, business sentiment averaged lower than in Q1, boding poorly for investment. Meanwhile, the government is intensifying its talks with the European Commission to unfreeze a third of the EUR 36 billion of EU funding designated for the country until 2027. That said, the remaining two-thirds should remain locked due to disagreements over reforms.
Inflation decreased to 24.0% in April from March’s 25.2% amid softer price increases for food, energy and consumer durables. Therefore, it moved slightly closer to the Central Bank’s 2.0–4.0% target range. Inflation should ease further going ahead. That said, it will remain high by historical standards, fueled by strong wage growth and continued pass-through effects.