The European Bank for Reconstruction and Development (EBRD) has revised Hungary's GDP growth forecast for 2024 to 1.8%, down by 0.4pp from its May report. Growth is expected to accelerate to 3.3% in 2025, although this is lower than the 3.5% target projected four months ago, according to the development bank’s latest report published on September 26.

Hungary's 2024 budget, drafted last summer, anticipated a 4% GDP growth. However, the deterioration of the external environment and a slower-than-expected rebound in household consumption forced the government to slash its growth forecast to around 2%.

The Finance Ministry now expects GDP growth to fall within the range of 1.8-2.2%, while the Ministry of National Economy forecasts slightly higher growth of 2.2-2.3%.

EBRD’s outlook aligns with the consensus among analysts, who have similarly downgraded their forecasts following the weaker-than-expected Q2 GDP data. ING Bank has projected growth at 1.5% for this year, though this figure could be at risk if third-quarter GDP results indicate contraction or stagnation, a possibility that cannot be ruled out.

The MNB has also issued a more pessimistic outlook in its latest quarterly update, downgrading its GDP forecast to a range of 1.0-1.8%, down from its previous estimate of 2-3% made in June.

Despite these adjustments, Hungary’s economy showed a 1.3% year-on-year growth in the first half of 2024, driven by a 10% increase in real wages, rebounding from a 0.9% contraction in 2023. The country’s unemployment rate stands at 4.3%, while its employment rate exceeds 81%, according to the EBRD.

One bright spot for Hungary has been foreign direct investment (FDI), particularly from China. In 2023 and the first half of 2024, Hungary attracted 44% of China’s FDI in Europe, primarily in the electric vehicle manufacturing sector. This influx of nearly €5bn represents 2.5% of Hungary's GDP and has created approximately 9,000 new jobs.

The EBRD's latest report also slightly raised its growth projections for nine Central European and Baltic EU economies, including Hungary, to 2.3% in 2024 and 3.2% in 2025, both up by 0.1 percentage points from previous forecasts.

Growth in the region, however, remains heavily dependent on the performance of Germany’s economy, which is Hungary’s key export market. Hungarian government officials have blamed the slowdown in the EU’s largest economy for some of the country's economic challenges.

German economists recently lowered their forecasts, now predicting a 0.1% contraction for 2024, a revision from the previously expected 0.1% growth. They anticipate only a modest recovery, with 0.8% growth in 2025, down from an earlier projection of 1.4%.

For Hungary’s export-driven economy, these developments pose additional challenges for sustained growth in the coming years.