Hungary

Economic growth in Hungary has struggled to gain traction following the post-pandemic period. After contracting in 2023, activity recovered only modestly in 2024, with early gains fading in the second half of the year amid elevated uncertainty, tighter financial conditions and renewed inflationary pressures. Domestic demand remained fragile, while investment continued to weigh on growth. As a result, Hungary’s recovery has lagged behind most CEE peers, with output still below pre-pandemic expectations. 

Structural and policy-related factors have amplified cyclical headwinds. Investment has been the weakest growth component in the region, constrained by frequent regulatory changes, distortive sectoral taxes and a strong state presence in key industries. In addition, strained relations with the EU and delays in the disbursement of cohesion and recovery funds have weighed on public and private investment, dampening confidence and limiting capital formation. External demand has also been volatile, with exports affected by weaker European growth and trade uncertainty, while high import dependence has limited the contribution from net trade. 

Inflation has moderated from the surge recorded in late 2024 but remains elevated and well above the central bank’s tolerance range. The recent deceleration has been supported by easing global commodity prices, a stronger forint and the gradual cooling of demand. Headline inflation has declined compared with early-year peaks, while core inflation has also softened, indicating some reduction in near-term price momentum. However, underlying inflationary pressures remain strong, with services inflation elevated due to persistent wage pressures and rapid growth in unit labour costs. Government price and margin controls have temporarily dampened headline inflation but have not eliminated broader cost pressures. 

Looking ahead, the near-term outlook remains subdued. Economic activity stagnated in 2025, with private consumption providing the main source of support thanks to still-favourable wage dynamics, while investment and net exports remained a drag amid persistent uncertainty. Growth is expected to recover gradually, reaching +2.2% in 2026 and +2.9% in 2027, supported by improving external demand and the gradual operationalization of earlier investments in electric vehicle and battery production. 

Inflation is expected to remain above target through most of 2025 before gradually easing as cost pressures abate and monetary conditions remain restrictive. We expect inflation to decline to 3.6% in 2026 and converge toward the central bank’s target at around 3.0% in 2027.

Structural weaknesses continue to weigh on Hungary’s competitiveness and medium-term growth potential. Productivity performance remains weak relative to regional peers, reflecting deep-seated firm-level constraints. Market structures are among the least competitive in the EU, with high concentration, low firm entry and exit rates and barriers to factor mobility limiting dynamism. These issues are reinforced by frequent regulatory changes, extensive state involvement in key sectors and the widespread use of sector-specific measures, which reduce predictability and discourage private investment. 

Access to risk capital remains limited, constraining the scale-up of innovative and high-growth firms. While public programs have expanded financing options, private equity and venture capital markets remain underdeveloped compared with peers, reducing incentives for innovation-led productivity gains. As a result, productivity-enhancing investment has lagged behind other CEE economies. 

Energy-related vulnerabilities further undermine competitiveness. Hungary remains one of the most energy-intensive economies in Europe, with reliance on subsidised fossil fuels increasing exposure to price shocks and weighing on the green transition. While diversification and renewable investment have progressed, the energy mix remains insufficiently flexible to support sustained competitiveness gains. 

Governance challenges remain a central structural risk. Persistent concerns related to rule of law, corruption and regulatory transparency continue to weigh on business confidence and have delayed access to EU funds, constraining public and private investment. Limited progress on governance reforms risks prolonging these constraints and reinforcing Hungary’s productivity gap relative to peers.