Hungary Dodges Recession as Growth Forecast Is Slashed

Hungary narrowly avoided slipping into recession in the second quarter of 2025, but fresh economic data and a downgraded growth forecast point to mounting challenges for Prime Minister Viktor Orbán ahead of next year’s general election.

Gross domestic product rose by 0.4% in the April–June period, following a revised 0.1% contraction in the first quarter, the Central Statistical Office reported. While the modest rebound keeps the country technically out of recession, analysts warn that stagnation remains the dominant trend.

"The big picture showing stagnation hasn’t improved," Erste Bank economist Orsolya Nyeste said, adding that services were the main contributor to second-quarter growth, offsetting weakness in industry and agriculture.

The release came just a day after the government sharply lowered its growth expectations for 2025. Economy Minister Márton Nagy announced that the Cabinet had cut its GDP forecast from 2.5% to just 1%, while raising its inflation outlook from 4.5% to 4.7%. Although the revised growth figure remains slightly above market consensus, the decision is seen as a more realistic reflection of Hungary’s economic trajectory.

Analysts at ING Bank noted that persistent low business and consumer confidence is hampering recovery. "The unpredictable external environment is holding back investment, while a deteriorating labour market and high inflation are encouraging households to save rather than spend," ING said in a research note. They also criticized government interventions, saying they risk further eroding confidence by adding to policy uncertainty.

Orbán had promised a “flying start” to the economy this year, but growth has remained elusive. The weak performance has been compounded by external pressures, including slowing demand from Germany, Hungary’s largest trading partner, which saw its own economy contract in the second quarter. Uncertainty over potential tariff moves by U.S. President Donald Trump has further clouded the outlook for export-reliant Central European economies.

Still, the Hungarian government sees potential for a pickup in the second half of the year. Wage increases and stimulus measures could drive a recovery in domestic consumption, the Economy Ministry said.

The subdued growth prospects, however, have political ramifications. A cost-of-living crisis and allegations of government corruption have propelled the opposition Tisza party into the lead ahead of elections expected in April 2026. Unlike in the previous 2022 vote, where Orbán boosted spending to shore up support, analysts say the government now has limited fiscal space to do the same.

The pressure is not only political. Economy Minister Nagy also told reporters this week that the country is working to avoid a downgrade to junk status by S&P Global Ratings. The agency currently holds Hungary at the lowest investment-grade level and cut its outlook to negative in April, citing mounting fiscal risks.

While ING believes Hungary’s growth structure may stabilize from next year onward, its economists revised down their medium-term GDP forecast from 4.0–4.5% to around 3%, citing ongoing structural challenges.