HUNGARIAN ECONOMIC OVERVIEW
Q1 2025
GOVERNMENT BULLISH FOR 2025, BUT WILL GERMANY’S AILINING ECONOMY OR TRUMP TARIFFS PROVE A DRAG?
In Q3 2024, EU GDP grew by 1% year-on-year (0.9% in the euro area), while Hungary’s largest trading partner, Germany, experienced a contraction of 0.3%. 2025 projections show only a modest improvement. A gradual recovery is expected in the euro area, while rising real disposable income and expected ECB rate cuts provide an upside stimulus. However, manufacturing challenges are likely to remain; trade tensions and potential tariffs, geopolitical risks, and political and fiscal policy uncertainty in some large euro-area countries are also on the cards.
In 2024, Hungary’s economy faced significant challenges, marked by a recession that saw GDP decline in the second and third quarters. This downturn was attributed to weak export demand, drought-affected agricultural production, and reduced investment activity. Overall, GDP growth for the first nine months of 2024 was just 0.7%, following a contraction of 0.8% in 2023.
The manufacturing sector, particularly automotive and battery production, struggled despite previous growth. Agriculture also suffered due to extreme weather, with crop production dropping by nearly 15%; the sector’s contribution to GDP was negative. The construction industry showed mixed results; while new projects increased early in the year, overall output declined by 4% in the third quarter. Investment activity continued to fall due to political uncertainties, lack of EU funds, delayed government projects, uncertain business environment and high interest rates, with gross fixed capital formation contracting by 14% year-on-year in Q3. However, foreign direct investment remained strong, particularly from Asian countries.
THE MACROSCOPE REPORT
HUNGARIAN ECONOMIC OVERVIEW
Q1 2025
In contrast, the services sector performed relatively well, contributing positively to GDP growth despite some slowdowns in trade and logistics. Household consumption improved as real wages rose and inflation eased, but overall, retail sales had only returned to pre-pandemic levels by late 2024. The labor market showed signs of strain, with a slight increase in unemployment and a decrease in employment numbers overall.
GDP CONTRIBUTION
Agriculture Construction
Other (taxes, less subsidies)
Industry Services
Total GDP (y.o.y., unadjusted)
Source: KSH
The external balance improved significantly, with a current account surplus of 2% of GDP expected for the year. Public finances showed improvement with a reduced deficit compared to previous years. However, concerns remain about the continuation of the fiscal consolidation, especially in light of the political cycle (national elections are due in Q2 2026). The inflation rate stabilized at around 3-4%, but core inflation remained persistently higher. The Hungarian forint depreciated in every quarter, but the most tangible weakening arrived in Q4. This was driven partly by local factors and partly by external developments. Looking ahead to 2025, moderate growth is anticipated across various sectors as external conditions are expected to improve, though challenges persist due to structural issues and geopolitical tensions.
EXTERNAL ENVIRONMENT: TARIFFS AND GEOPOLITICAL TENSIONS
Overall, in 2024, the EU economy experienced modest growth after a period of stagnation, with the European Commission estimating a GDP growth rate of 0.9% for the EU and 0.8% for the euro area. However, Germany, a key trading partner for Hungary, experienced a contraction of 0.3%. All the Visegrad Group countries except Hungary (the others being the Czech Republic, Poland and Slovakia) reported positive GDP growth. Six EU member-states, including Hungary, saw their GDP growth turn negative on a quarterly basis.
