Hungary Economic Forecast

The pace of year-on-year GDP contraction sharpened in Q2 amid elevated inflation and interest rates, downbeat consumer sentiment and a weak global economic environment. The rate of economic decline should have moderated in the third quarter, although momentum remained subdued. Industrial production dropped at a softer annual rate in July, as did retail sales. That said, consumer and business confidence remained deeply entrenched in pessimistic terrain in the quarter, while inflation fell but proved sticky in July-August, likely weighing on household spending. As a further testament to persistent economic weakness, money supply dropped at a faster year-on-year pace in July than in the second quarter. Completing the bleak picture, on the external front, merchandise exports shrank at a faster pace than in Q2 in July.

Inflation eased to 16.4% in August from July’s 17.6%, marking the lowest rate since August 2022 and moving closer to the Central Bank’s 2.0–4.0% target range. Inflation should continue its downtrend until year-end. However, it will remain significantly above the Central Bank’s target, fueled by robust wage growth and protracted pass-through effects.