European Commission Projects Hungary's GDP Growth to Rebound in 2024 and 2025

The European Commission's 2024 winter forecast projects Hungary's GDP growth to reach 2.4% in 2024 and 3.6% in 2025, following a 0.9% decline in 2023. The recovery is expected to be driven by falling energy prices, lower inflation, and interest rates. However, the region faces risks from global factors, such as a weak recovery in Germany, disruptions to global supply chains, and potential geopolitical tensions.

According to the forecast, EU member states in Central, Eastern, and Southeastern Europe are expected to surpass the euro area. The Visegrád countries (Poland, Czechia, Slovakia, and Hungary) are projected to expand at an average rate of 2.4% in 2024 and 3% in 2025. Romania and Croatia are also expected to see strong growth of 3% and 2.9% respectively in 2024.

Why this matters: Hungary's projected economic rebound in the coming years is significant for the country and the broader Central and Eastern European region. The recovery, driven by improving economic conditions, could help mitigate the impact of the previous year's decline and contribute to overall stability and growth in the EU.

The Hungarian National Bank (MNB) Vice President Barnabás Virág emphasized the need for a cautious and patient approach to interest rate policy, as the economy is experiencing significant and widespread disinflation. The MNB is targeting a base rate of 6.5 to 7 percent by the end of June 2023, with a 50 basis point cut at the current meeting. Virág also highlighted the importance of monitoring geopolitical tensions and their potential inflation risks.

Despite the projected growth, Hungary faces challenges such as hindered export performance due to prolonged weakness in the European economy. However, significant capacity expansion from foreign direct investment is gradually increasing. The IMF forecasts 3.3% growth for Hungary in 2025, with only Malta, Romania, and Poland expected to grow faster at 3.5-4.0%.

Hungary will take up the presidency of the European Union for the second time in 2023 amid these challenging times. The Council has decided to lower the symmetric interest rate corridor, bringing the O/N deposit rate to 6.75% and the O/N collateralised loan rate to 8.75%. The country's close economic and investment cooperation with China has made it one of the 'global frontrunners' of technological transformation.

In light of the economic situation, Hungarian officials have criticized certain EU decisions and policies. Prime Minister Viktor Orbán has called for the election of new EU leaders, stating that previous sanctions have caused more damage to Europe than to Russia. Foreign Minister Péter Szijjártó echoed this sentiment, saying that European citizens, including Hungarians, have paid the price for these measures.

As Hungary navigates the economic challenges and opportunities in the coming years, the European Commission's projections offer a cautiously optimistic outlook. MNB Vice President Virág stressed the importance of a measured approach to interest rate policy and monitoring geopolitical risks. While global factors pose uncertainties, Hungary's projected growth and its role in the EU presidency highlight the country's resilience and potential for recovery.

Key Takeaways

• Hungary's GDP projected to grow 2.4% in 2024 and 3.6% in 2025 after 0.9% decline in 2023.
• Central/Eastern Europe expected to outperform Eurozone, with Visegrád countries growing 2.4% in 2024.
• MNB targets 6.5-7% base rate by June 2023, emphasizing cautious approach amid disinflation.
• Hungary faces export challenges but benefits from foreign investment and technological transformation.
• Hungarian officials criticize EU sanctions, claim they've hurt Europe more than Russia.