Page 28 - CE Outlook Regions 2024

sector, Hungary would have recorded a 4% y/y decline in Q3 compared to the 0.4% headline data.
The value added of industry, construction, and services is still below last year's level. Economic performance has been dragged down by falling investments due to double-digit lending rates, and foreign trade’s contribution was also negative. The fall in real wages dented the purchasing power of households and the retail sector fell to 2021 levels. Consumer sentiment in November was below levels seen during the pandemic, and the recovery of the Hungarian consumer could take longer than the government hopes. Households may use positive real wage growth to replenish their reserves, which poses downside risks to growth.
In 2023, Hungary’s economy is set to shrink by 0.4%, falling for the second time since Viktor Orban took power in 2010, excluding the pandemic. Despite the fallout of the energy crisis on smaller businesses, plus windfall taxes, the jobless rate hovered around 4%. Economic growth will likely gain momentum from Q4 and follow through in 2024, spurred by household real incomes and private consumption. In the government’s latest medium-term outlook, GDP will grow by 3.6% in 2024 compared to the 4% assumed in the budget bill.
Disinflation should support growth, while public consumption and investment would provide less support to growth in 2024 and 2025 as the government aims to reduce the budget deficit. The government approved the 2024 budget assuming a 6% inflation rate, but at a year-end interview, Prime Minister Viktor Orban said it could be close to 5%.
The cabinet’s 4% GDP forecast for 2024 is above both the MNB’s target and that of analysts, who say the restrictive fiscal policy to meet the 2.9% budget target could dent growth. The MNB revised its 2024 GDP target downward from 3-4% in September to 2.5-3.5% at the December 19 rate-setting meeting.
The European Commission said Hungary's GDP was likely to fall by 0.7%in 2023, and real GDP growth is forecast to pick up to 2.4% in 2024, and further to 3.6% in 2025. The OECD forecasts output bouncing back to 2.4% from a 0.6% decline. Fitch forecasts a 0.6% contraction of the economy in 2023 but predicts GDP growth of 3% in 2024; S&P sees an economic expansion of 2.6% from a 0.5% contraction in 2022.
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