Hungary Outlook | Different headwinds imply more prolonged economic weakness

Following the weak 1Q 2025 GDP figures, we reduced our 2025 forecast for annual GDP growth to 0.8%. Investments will continue to decline amid increased uncertainties, partly stemming from tariff risks. In the absence of improvement in external demand, export activity is set to remain sluggish. However, household consumption may remain the main growth driver. In 2026, new production capacities will boost growth, while we expect a gradual recovery in investments and exports. Inflation stood at 4.4% y/y in May, while core inflation was at 4.8% y/y. Although these figures are lower than at the beginning of the year, they remain above the tolerance range despite administrative price-curbing measures and a sluggish economy. The short-term outlook is rather mixed: some factors point to disinflation, but the unsupportive base effect is likely to keep the headline rate above 4% approximately until the end of the year. The 12-month rate may reach the target range in the first half of 2026.