Hungary’s Growth Stalls as Inflation Returns to Target Range

Hungary’s economic growth slowed to a crawl at the end of 2025, with fourth-quarter GDP expanding just 0.2% quarter-on-quarter. This tepid finish dragged full-year growth down to approximately 0.4%, well below initial projections and even weaker than Hungary’s 2024 performance. Despite ramped-up government spending late in the year, the stimulus failed to meaningfully boost overall activity. Domestic consumption showed some improvement, but it was offset by declining investment and soft exports, leaving the economy effectively in a no-growth zone.

The latest data confirm that 2025 marked a third consecutive year of economic stagnation for Hungary. By contrast, several Central European peers achieved significantly higher growth. Poland’s economy grew around 3.6% in 2025 – one of the strongest showings in the EU – supported by robust domestic demand and EU-funded investment. Czechia also managed roughly 2.5% growth as inflation there eased and consumption rebounded. Even Romania, despite a marked slowdown, posted about 1% growth for 2025, outperforming Hungary’s essentially flat outcome.

Regional economists note that Hungary’s industrial sector struggled, and the country underperformed while neighbors like Poland and Czechia surprised on the upside. In light of the weak finish to 2025, analysts have trimmed expectations for Hungary’s near-term outlook. ING Bank, for example, cut its 2026 GDP growth forecast for Hungary to 1.9% from a previous 2.3%, citing the lower carry-over and growing downside risks.
Hungary’s central bank (MNB) is slightly more optimistic, recently projecting about 2.4% growth in 2026, but even that would lag well behind Poland’s 3.5% expansion forecast for next year.

Inflation recedes from record highs
After two years of surging prices, Hungary’s inflation has rapidly fallen back into single digits. The country endured the EU’s highest inflation in 2023 at an average 17.5%, with price growth peaking above 26% in early 2023. By contrast, 2025 saw a dramatic reversal of trend. Consumer prices rose by an average of 4.4% in 2025, and by December 2025 headline inflation was down to 3.3% year-on-year, near the National Bank’s 3% ±1ppt target range. Official data show only minimal monthly price movement at year-end, indicating that inflationary pressures have largely stabilized. Core inflation has also moderated, though service prices remain somewhat sticky (around 6–7% annual growth) even as fuel and food costs declined.

Hungary’s rapid disinflation now puts it roughly in line with regional peers – a stark change from a year earlier. Poland’s CPI ended 2025 at 2.4%, comfortably within the Polish central bank’s target band. Czechia’s inflation was about 2.1% by December, after averaging 2.5% over 2025. In Hungary, the 3.3% year-end rate was very close to the MNB’s goal and far below the highs seen in 2022–23. Romania, however, remains an outlier – it closed 2025 with inflation still at 9.7% (the highest in the EU) and a 7.3% annual average, reflecting persistent price pressures there.

Europe’s highest interest rates
Despite the steep drop in inflation, Hungary’s central bank has so far held firm on monetary policy. The Magyar Nemzeti Bank (MNB) left its benchmark base rate at 6.50% at the January 2026 meeting – its 15th consecutive hold. Hungary’s policy rate has remained at this level since September 2024, following an earlier emergency tightening cycle. At 6.5%, it is currently tied with Romania’s as the highest central bank rate in the European Union. Policymakers justify the cautious stance by pointing to underlying inflation metrics: while headline inflation is back near target, services inflation of about 6.8% is keeping core price growth elevated. The MNB has signaled that it will move gradually and base decisions on incoming data, dropping its earlier guidance that had ruled out any rate cuts. Officials indicate that a sustained improvement in core inflation and anchored expectations are needed before easing can begin.

Market expectations are building that Hungary will commence monetary easing later in 2026 if disinflation persists. Investors are pricing in potential rate reductions in quarterly steps, though central bank leadership has struck a hawkish tone, emphasizing “tight monetary conditions remain justified” until price stability is assured. In contrast to Hungary’s wait-and-see approach, some neighbors have already begun cutting rates. Poland’s central bank, for instance, reduced its reference rate to 4.00% by the end of 2025 (down from a 6.75% peak) and is now pausing to assess the sustainability of low inflation. The Czech National Bank has also eased, cutting its main rate to 3.50% by mid-2025 before pausing, as Czech inflation fell near 2%. These divergences reflect different inflation realities: Polish and Czech prices have normalized more quickly, whereas Hungary (like Romania) is emerging from a period of exceptionally high inflation and thus retains a tighter policy stance for now.

With inflation back under control, Hungary’s near-term economic fate hinges on rekindling growth without reigniting price pressures. The government has rolled out new fiscal measures (including wage hikes and household subsidies) to spur consumption in 2026. Economists say this could lift domestic demand, but any upside may be limited by the still-high borrowing costs and cautious business sentiment. Both the MNB and independent forecasters see Hungarian GDP growth only in the 1.5–2.5% range for 2026 – modest by regional standards. By comparison, Poland and Czechia are expected to continue outpacing Hungary next year in terms of growth. For Budapest policymakers, the challenge will be to nurture a stronger recovery after three years of malaise, while gradually easing monetary conditions in a way that does not undermine the hard-won progress on taming inflation.