Hungary’s economy sees a sluggish recovery

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Flash GDP data for the fourth quarter released Thursday shows the Hungarian economy has emerged from a technical recession. Even so, the overall picture still isn’t looking too rosy, and the economy as whole is lacking a strong positive momentum, ING Bank said.

There were signs that the Hungarian economy hadn’t ended last year on a strong note even before the release of Hungary’s fourth quarter GDP data. In turn, the Hungarian Central Statistical Office (HCSO) has published a figure that was quite close to the already muted consensus forecast.

The outlook is mixed. The 0.5% quarter-on-quarter growth has pulled the Hungarian economy out of a technical recession, but seasonally and calendar-adjusted GDP growth in the fourth quarter was only 0.2% year-on-year, indicating a sluggish pace in the country’s economic recovery.

GDP growth for 2024 as a whole was just 0.5%, well below expectations from the start of the year. It is the second year in a row that economic activity has delivered a significant negative surprise compared with previous expectations.

The HCSO data shows the volume of value added in agriculture, industry and construction all fell on an annual basis in the fourth quarter of 2024. ING said agriculture became a major negative contributor due to the combined effect of bad weather and a high base. Industry continues to lack foreign demand as the global inventory cycle has yet to turn.

Construction is hectic, a clear sense of weakness in the form of subdued demand from both businesses and households. The downturn is likely due to a lack of government orders as a result of fiscal austerity. Orders are  expanding in the construction sector. The HCSO also pointed out that the performance of the services sector offset the negative performance of other sectors and ultimately led to at least a modest increase in real GDP.

However, this is likely to have been accompanied by a pick-up in imports. Consumption is expected to have been the driving force, with investment activity showing a marginal improvement as net exports pulled back the economy’s performance.

The quarterly annualized growth rate of Hungarian real GDP

Source: HCSO, ING

In terms of the GDP outlook for 2025, the fourth quarter figure, which was broadly in line with expectations, doesn’t really change the bigger picture. Newly released statistics show Hungary’s economic momentum is weak, as the carry-over effect into 2025 will essentially be zero.

Hungary’s economy would have to grow at an average quarter-on-quarter rate of 1.3-1.4% over the course of 2025 to reach the government’s official GDP growth forecast of 3.4%. This is not impossible, as the Hungarian economy managed that in the years immediately before the Covid crisis and in the recovery phases, when fiscal and monetary policies were supportive, which is not the case today.

External demand is also much weaker than it was, and consumer and business confidence is more fragile and has weakened in recent months. In such an economic environment, ING maintains it previous forecast of GDP growth of around 2.0% in 2025.

Economic activity is expected to be driven by improving consumption and investment, but will also be accompanied by a more imports and unless there is a radical improvement in external demand, net exports hamper Hungary’s overall economic performance.

 

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