IMF: Hungary could be left behind, Trump has knocked out the whole world

Signs of stabilization were emerging through much of 2024, after a prolonged and challenging period of unprecedented shocks. Inflation, down from multidecade highs, followed a gradual though bumpy decline toward central bank targets.

According to estimates by Haver Analytics and the IMF, the official inflation rate in the United States fell from 8% at the beginning of 2022 to around 3% at the beginning of 2025. Core inflation - which excludes volatile food and energy prices - also shows a downward trend, falling from around 6% at the start of 2022 to around 2% at the start of 2025. A similar trend has been observed in other advanced, emerging and developing economies, although the pace and magnitude varies across countries.

Labour markets have also returned to normal, with unemployment and vacancy rates returning to pre-pandemic levels. In the US, for example, the unemployment rate has fallen from a peak of 14% in April 2020 to around 4% in early 2025, while the vacancy and unemployment rate has risen from 0.6 to 1.5.

 In the euro area, the unemployment rate has fallen from a peak of 8% in mid-2020 to around 6% in early 2025. According to the IMF, this points to a more balanced labour market, but with different rates of catch-up across regions, it is not certain that the trend will not be reversed amid the tariff war.

 The WEO report points out that global growth has hovered around 3% in recent years, with output close to potential GDP growth, but that the outlook is now much worse.

However, major policy shifts are resetting the global trade system and giving rise to uncertainty that is once again testing the resilience of the global economy.

Since February, the United States has announced multiple waves of tariffs against trading partners, some of which have invoked countermeasures. Markets first took the announcements mostly in stride, until the United States' near-universal application of tariffs on April 2, which triggered historic drops in major equity indices and spikes in bond yields, followed by a partial recovery after the pause and additional carve-outs announced on and after April 9.

For example, the S&P 500 Index fell by around 10% between March and April, while the yield on the 10-year US Treasury rose from 3% to 4%.

Although there has been a partial correction, high share price/earnings ratios suggest the possibility of another turbulent downturn, according to the IMF.

Too many uncertainties

Trade policy uncertainty has reached unprecedented levels, the IMF says in the report.

The World Uncertainty Index (WUI), Economic Policy Uncertainty (EPU) and Trade Policy Uncertainty (TPU) indices have all risen significantly since the beginning of the year.

the WUI, for instance, jumped to 70,000 by april 2025 from 20,000 in early 2024.

They believe that uncertainty has contributed to the slowdown in economic momentum: real activity is below forecasts and high-frequency indicators point to a slowdown in growth. . In the United States, consumer, business, and investor sentiment was optimistic at the beginning of the year but has recently shifted to a notably more pessimistic stance as uncertainty has taken hold and new tariffs have been announced In many countries, hiring has slowed and layoffs have increased - a sign of a turning point in the business cycle.

They point out that one of the big losers in the current period could be China.

In China, growth was mainly driven by external demand, while the long-weak housing sector and the resulting deterioration in local government finances weighed on domestic demand. Chinese consumer confidence fell sharply in early 2022 and has not recovered since. Trade tensions and tariffs in recent years have also had a disproportionate impact on the Chinese economy.

In the United States, by contrast, household consumption as a share of GDP is at an all-time high, while the budget deficit remains extremely high.

They point out that, globally, most economies have recovered some of the damage caused by the pandemic, but in many cases output is still below the pre-pandemic trend. For example, US GDP in 2025 is 3.6% above trend, while China is 5.3% behind. For the euro area the gap is -2.5% and for Brazil -0.7%. These differences reflect the different impacts of the pandemic and the different economic policy responses.

The IMF notes that European economies, particularly the industrial centres of Germany and Italy, have been hit hard by the disruption in the natural gas market following the Russia-Ukraine war.

The energy price shock had a twofold effect: the dollar appreciated and stagflationary pressures increased. The United States was partially insulated from these shocks as it shifted from being an energy importer to an exporter. This shift has reduced the vulnerability of the US economy to energy prices.

Demographic factors are also exacerbating the manufacturing and economic difficulties of some countries. A growing number of countries around the world are reaching a demographic tipping point, with direct implications for labour supply and productivity. Germany, Italy and Japan are the worst off, with accelerating depopulation and ageing, but the United States is not far behind.

In the US, the rapid integration of immigrants into the labour market has helped to offset labour shortages, which may now be coming to an end due to the anti-migrant pivot brought about by Donald Trump.

Labour productivity growth fell almost everywhere except the United States - partly because of higher investment. Lack of investment explains half of the slowdown in productivity growth in advanced economies and a third in emerging and developing economies.

The whole world hits the brakes

In the IMF's baseline scenario, global growth is projected to fall from 3.3% in 2024 to 2.8% in 2025, before rising to 3% in 2026.

This is lower than the January 2025 updated WEO forecast of 3.3% for this year, partly due to the direct and indirect effects of the new trade measures (through trade chains, uncertainty and sentiment).

 Two alternative scenarios were also used for the forecast: if the measures of 2 April had not been introduced, growth would have been 3.2% in both 2025 and 2026, 0.1 percentage point lower than in the January forecast.

Hungary in the middle of the CEE ranking

According to the IMF's latest forecasts, the economies in Europe, especially in Central and South-Eastern Europe, could follow very different growth paths in 2025 and 2026. Serbia is expected to grow fastest, with GDP expanding by 3.5% in 2025 and 4.2% in 2026.

Poland also ranks high, with stable macroeconomic fundamentals and EU funds ensuring growth of around 3% in both years. Croatia could also perform strongly, mainly supported by tourism and EU funds, with growth of 3.1 per cent in 2025 and 2.7 per cent in 2026, according to the IMF.

The region's middle band includes Slovenia, Romania, the Czech Republic and Hungary. Slovenia's economy is expected to grow by 1.8% in 2025 and 2.4% in 2026, while Romania's is forecast to grow by 1.6% and 2.8% respectively. The Czech economy will recover only slowly, with GDP forecast to grow by 1.6% in 2025 and 1.8% in 2026.

In the case of Hungary, the IMF is much more pessimistic than the government's forecast of 2-2.5% growth this year and 4% next year, projecting growth of only 1.4% in 2025 and 2.6% in 2026.

Slovakia is one of the worst performers, with growth of only 1.3% in 2025 and 1.7% in 2026. The outlook is even worse for Austria, where the IMF expects the economy to contract by -0.3% in 2025 and grow by only 0.8% in 2026.

In the case of Germany, growth is virtually stagnant, with zero growth forecast for 2025, followed by a modest 0.9% increase in 2026. This is particularly worrying for the region, given Germany's key role in the region's export markets. The outlook for France and Italy is also weak, with the former expected to grow by 0.6% in 2025 and 1% in 2026, and the latter stagnating at 0.4% in 2025 and 0.8% in 2026.

The exception in Western Europe is Spain, where growth is expected to remain strong at 2.5% in 2025, although it will slow to 1.8% in 2026. For the euro area as a whole, growth will remain relatively low, reaching 0.8% in 2025 and 1.2% in 2026.

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