Hungary central bank lowers GDP forecasts

The Hungarian central bank has sharply lowered its GDP forecast for this year and next year, projecting economic growth of between 1.0-1.8% this year, compared to the 2-3% it expected three months ago.

In the past few months, the growth outlook has deteriorated significantly, leading most analysts to cut their GDP growth forecasts, so it is not surprising that the MNB has also taken action, joining the more pessimistic forecasters with its 1.0-1.8% estimate.

While the government expects growth to be around 2% (the Ministry of Finance 1.8-2.2% and Economy Ministry 2.2-2.3%), the MNB says that growth could easily end up as low as 1%.

According to the MNB, the economy may grow more slowly in 2025 than previously expected. According to the latest forecast, GDP growth will be 2.7-3.7% next year, compared with a 3.5-4.5% projected three months ago. However, they have revised up their forecast for 2026, when they see GDP growth of 3.5-4.5% as achievable, up from the 3.0-4.0% range.

The central bank has changed its inflation expectations only slightly. It forecasts a 3.5-3.9% CPI this year, compared with 3.5-4.5% in its June Inflation Report..

Thanks to the favourable inflation data that have come in in the meantime, the forecast range has been narrowed, so inflation will almost certainly be below 4% this year. The central bank forecasts inflation to remain within the MNB's tolerance band of 2-4% in 2025 and 2026, although the estimate for next year has been raised slightly.

"The MNB’s projection for 2025 has been revised upward compared to the June inflation projection, primarily reflecting the pass-through of a rise in financial transaction fees into consumer prices," the MNB said in the rationale for today's 25bp rate cut.  

The full quarterly Report on Inflation is set to be published on Thursday morning.

Cover photo: Portfolio