Hungary’s GDP is expected to grow by around 1.6% in 2024 and 3.4% next year, according to the latest forecast from MBH Bank's macro analyst unit. This year’s forecast has been revised from 2.7%, driven by weaker external demand and a significant drop in investments.

Economic growth will accelerate to 3.4% next year, boosted by an improving interest rate environment, a rebound in investments, and rising domestic consumption. In May, MBH forecast the economy would grow by 3.7% in 2025.  The 2024 and 2025 forecasts are slightly below the government’s targets.

The tight labour market is expected to continue exerting upward pressure on wages, which in turn will further boost disposable household incomes for the remainder of the year.

Inflation, which briefly spiked in July, has since fallen within the central bank’s tolerance range, reaching 3% in September for the first time since January 2021. Disinflation was largely due to falling fuel prices and a reduction in service costs, which marked the first price drop in this segment in a considerable period.

However, headline inflation is projected to rise again by the end of 2024 and average 3.8% for the year and average 3.6% in 2025.

Looking forward, inflationary pressures are likely to persist due to wage growth boosting domestic demand, although cyclical economic trends are expected to counterbalance these effects, keeping inflation within the tolerance band of the central bank.

MBH Bank forecasts further cuts to the central bank’s base interest rate, which currently stands at 6.50%. The Monetary Council has been pursuing a policy of gradual rate reductions, with a 25bp cut in July followed by another small cut in September.

The current trajectory suggests that the base rate could fall to 6.25% by the end of 2024, with additional cuts anticipated in 2025, potentially bringing the rate down to 5.00%.

The forint has weakened slightly against the euro in recent months, surpassing the 400 HUF/EUR threshold in October. However, further significant depreciation is not expected. According to MBH Bank's forecasts, the EUR/HUF will stabilize at 392.5 by the end of 2024, with a slight nominal weakening to 395 by the end of 2025.

The steady surplus in the current account is fundamentally positive for the forint, but the MNB’s room of maneuver for steeper rate cuts is constrained by the inflationary trajectory, analysts said.

Overall, the MNB will likely keep a higher interest rate premium compared to its peers in the region, providing support for the currency, which remains vulnerable to swings in market sentiment.

Hungary's budget deficit is projected to meet the 2023 target of 4.5% of GDP, despite a rapid increase in the early months of the year due to fiscal measures introduced over the summer. The government launched a new levy on FX transactions while keeping windfall taxes on multinational companies in place.

MBH Bank analysts maintain their 3.7% deficit forecast for 2025 but warn of the potential for a slightly higher shortfall. Lower debt service costs due to falling interests and improved growth prospects should ease fiscal pressures; expansionary measures like increased family tax allowances and the introduction of worker loans could strain the budget.