In the latest quarterly review, Hungary's economic performance fell short of analysts' projections, underscoring the challenges of a gradual recovery from a protracted recession that continues to pressure the nation's fiscal framework.
According to data released by the Budapest-based statistics office this week, Hungary's Gross Domestic Product (GDP) increased by 1.1% on an annual basis for the January-March quarter. This modest growth follows a stagnant fourth quarter and a period marked by three consecutive quarters of recession. The figures were below the median Bloomberg survey estimate, which had predicted a 1.3% growth rate. Sequentially, GDP saw a 0.8% rise from the previous quarter.
The administration led by Prime Minister Viktor Orbán had already adjusted its annual economic growth forecast downward from 4% to 2.5% for this year, necessitating a recalibration of the budget. The revision became imperative after the budget deficit reached the annual target within the first quarter alone. Earlier in the month, the government announced the deferment of approximately HUF 675 billion ($1.7 billion) in state-funded investments to align with its revised deficit target of 4.5% of GDP for the current year. This measure is anticipated to cover only about half of the necessary fiscal adjustments required to meet the deficit objective.
The economic expansion in the first quarter was hampered by a decrease in industrial production, although this was partially offset by robust performance in the services sector, particularly in real estate transactions and the IT industry, the statistics office noted.
Slow return to growth
The Organisation for Economic Co-operation and Development (OECD) has projected a more conservative growth for Hungary, anticipating a 2.1% increase in GDP for 2024, as per its latest biannual Economic Outlook. This projection is a slight decrease from the 2.4% growth forecast in November and remains below the government's target of 2.5%. However, the OECD expects growth to pick up to 2.8% in 2025, supported by declining inflation and interest rates which are likely to bolster private consumption and investment. Nonetheless, the OECD report highlighted significant risks from international trade tensions and volatile global commodity prices. It emphasized the critical nature of the fiscal consolidation pace and the outcomes of discussions regarding European Union funding allocations as primary uncertainties facing Hungary’s economic trajectory.
Moreover, the OECD advised further fiscal reforms, particularly in public pension systems to manage rising costs associated with an aging population. It also recommended enhancing productivity through increased competition in key sectors such as energy, transportation, professional services, and telecommunications, and accelerating firm digitalization through broader dissemination of digital skills.
Echoing a similarly optimistic view, the International Monetary Fund (IMF) aligns with the European Commission's latest projection, forecasting Hungary to return to growth this year. Mihály Varga, the finance minister, shared via Facebook that the IMF anticipates a 3.3% growth for Hungary in 2025.


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