Economy stalls in Q1 2025

Economy enters 2025 on weak footing: A second release confirmed that GDP was flat compared to a year ago in the first quarter of 2025, after expanding 0.4% in the fourth quarter of last year. Q1’s figure was weaker than markets had anticipated. On a seasonally and calendar-adjusted quarter-on-quarter basis, GDP dropped 0.2% in Q1, contrasting the previous period's 0.6% growth.

Domestic demand and net trade dampen economy’s performance: Domestically, total investment fell 10.3% year on year (Q4 2024: -4.5% yoy) and household spending growth fell to 4.1% in Q1, marking the weakest expansion since Q4 2023 (Q4 2024: +5.5% yoy). More positively, government spending rebounded, growing 7.3% in Q1 (Q4 2024: -1.2% yoy). On the external front, net trade detracted from overall GDP for the third consecutive quarter. Exports of goods and services fell 0.4% on an annual basis in the first quarter, which was above the fourth quarter's 3.3% contraction. In addition, imports of goods and services rebounded, growing 0.1% in Q1 (Q4 2024: -3.1% yoy), marking the strongest reading since Q1 2023.

Economy will continue to struggle this year: Our panelists expect annual GDP growth to remain subdued in Q2, capped by elevated interest rates and inflation plus downbeat consumer and business sentiment. Later in the year, the economy should gather pace, but the acceleration will likely be insufficient to compensate for H1’s downbeat performance: In 2025 as a whole, GDP growth will be one of the weakest in Central and Eastern Europe (CEE). Hungary is set to see the third consecutive decline in fixed investment this year—the only one in the CEE region—due to tight fiscal controls, low business confidence and economic uncertainty. Still, the economy should get a boost from pre-election spending plus a recovery in exports. An EU-U.S. trade war hitting external demand poses a downside risk.

Panelist insight: ING’s Peter Virovacz and Kinga Havasi commented on their forecast downgrade: “We now forecast weaker growth in domestic demand (in both consumption and investment activity), but anticipate a smaller negative contribution from net exports. Given the mounting global challenges, the further delays to new export capacities and the generally weak level of confidence, we have downgraded the outlook for 2026–2027 from the 4.0–4.5% range to around 3%.”

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