Economy 26 September 2023, 3:25pm

Hungary central bank raises inflation estimates, cuts GDP forecasts

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In parallel with today's 100-basis-point interest rate reduction and a revision of its monetary policy toolkit, the National Bank of Hungary (MNB) has also published its updated inflation and GDP estimates. It has raised its 2023 and 2024 CPI projections, while it trimmed its GDP estimates for both years compared to June. Now the MNB believes even a mild recession (negative annual average growth) in 2023 is on the cards.

2023

In consideration of new data and given the short time that remains until the end of the year, the central bank has considerably narrowed the range of its its inflation estimate, the median value of which has been revised upwardly.

As seen in the table below, the 2023 CPI estimate range of 16.5-18.5% (with a 17.0% median value) in the June Report on Inflation has been modified to between 17.6% and 18.1% (median value: 17.85%).

In light of the downside surprise in Hungary's Q2 GDP data (recession recorded for the fourth quarter in a row), this year's GDP estimate has been lowered markedly. While the MNB projected this year's annual average growth to come in between 0.0% and 1.5%, now it believes that even contraction is possible, estimating GDP in a range between -0.5% and +0.5%.

2024

The central bank has also revised upwardly its 2024 inflation estimates and come up with an unusually wide forecasting range between 4.0% and 6.0% (median: 5.0%), from 3.5% and 5.5% (median: 4.5%) in June.

The MNB apparently does not expect such a rapid rebound in growth, as its June GDP growth estimate of 3.5-4.5% has been lowered to 3.0-4.0%.

2025

The 2025 CPI and GDP estimates remained on hold in a range between 2.5% and 3.5% (median value of 3.0% matches the medium-term inflation target) and 3.0% and 4.0%, respectively.

The latest central bank summary also includes the usual fan charts for inflation and GDP growth. The inflation graph shows that the year-on-year inflation path could remain well above the 3% inflation target for the rest of next year, before falling to around the 3% target at the end of 2024 due to base effects.

The GDP growth fan chart suggests that the Hungarian economy could bottom out this year with a performance of around zero, and start a bounce-back to an annual growth rate of around 3-4% next year.