The year-end finally brought some good news for the Hungarian economy: the volume of Hungary’s gross domestic product was 0.4% higher according to raw data and 0.2% higher according to seasonally and calendar adjusted and reconciled data in the fourth quarter of 2024 than in the same period of the previous year.
Compared to the previous quarter, GDP grew by 0.5% according to seasonally- and calendar-adjusted data, and thus the technical recession ended. In 2024, the performance of the economy was 0.5% higher according to raw data and 0.6% higher according to seasonally and calendar adjusted and reconciled data than in the previous year, the flash estimate for Q4 2024 released by the Central Statistical Office (KSH) reveals.
The Hungarian economy thus showed growth after six months of contraction. The expansion exceeded previous expectations, although this year’s outlook is very restrained for the time being. Still, GDP growth may exceed the restrained 0.6% pace seen last year.
“Based on today’s data, my 2.5-2.6% growth expectation for this year does not need to be revised for now, but of course, this is still surrounded by many risks, perhaps the most important of which is the extent of wage increases and the resulting increase in hiring, as well as the development of external demand (thinking of the German economy, for example), which in turn affects exports,” said Gábor Regős, chief economist at Gránit Alapkezelő in a note following the publication of the fresh GDP data.
At the same time, this year’s growth may rest on a broader base than in 2024, and consumption, investments and exports could all contribute, Regős pointed out. The expected increase in real wages should induce the expansion of consumption, the development of the construction industry’s order book is encouraging concerning investments, and the startup of new production capacities in exports may also help.
However, the chief economist thinks that it will be a long time before the Hungarian economy can return to a growth path of around 4%.
Growth also requires a favorable external environment: this could be helped by the conclusion of the Russian-Ukrainian war, the easing of geopolitical tensions, and the strengthening of European competitiveness, Regős concluded.
The base effect does not help this year’s GDP growth, according to Péter Virovácz. The ING Bank analyst said that to meet the government’s 3.4% forecast, the Hungarian economy would have to produce an average quarter-on-quarter growth rate of 1.3-1.4% in 2025.
“This is not unrealistic at all and does not seem impossible, as the Hungarian economy was able to do this both in the pre-COVID crisis period and in the post-COVID recovery period. At the same time, fiscal and monetary policy were significantly more supportive in those years, which cannot be said today,” Virovácz noted.
He added that external demand is much weaker than it was then, and consumer and business confidence is also more fragile. In such an economic environment, ING Bank continues to stick to its previous forecast that GDP growth will average around 2% in 2025. That was a point of view shared by others.
“Despite the uncertainty factors, we expect a substantial recovery in the Hungarian economy in the coming quarters, as a result of which annual real GDP growth approaching 4% may be achieved by the end of 2025. However, since the annual indices may remain relatively low in the first half of this year, despite the expected substantial recovery, overall, an annual average growth of around 2.5% seems achievable by 2025,” wrote Márta Balog-Béki and Zoltán Árokszállási, analysts at MBH Bank in a joint statement.
Hungarian GDP developed favorably in Q4 2024; not only has the Hungarian economy exited a technical recession, but the carry-over effect also paints a more favorable picture of this year’s growth, commented Dániel Molnár, a senior analyst at Makronóm Intézet.
The KSH has not yet published detailed figures, but it is clear from the sectoral data released so far that the turnaround has occurred in broad sectors of the economy. The October-November data shows that industry, construction and, in particular, retail trade expanded quarterly. At the same time, the tourism sector closed last year with an outstanding performance, primarily due to foreign guests.
The more favorable performance of these sectors may have induced growth in other areas, such as transportation, warehousing or wholesale trade, at the end of the year.
The economy may have been driven by consumption in the fourth quarter, supported by the improving income situation following dynamic wage growth, while lending also picked up. However, the contribution of net exports may have been negative again, primarily due to the deterioration of the goods trade balance, in which the still subdued external demand, especially the weakness of German industry, played a role. At the same time, the recovery in consumption may have pulled up the volume of imports.
The quarterly growth also suggests that investments may have started to rise from their low point at the end of last year, Molnár says. As for this year, he expects domestic demand to continue to drive the economy. The improvement in the income situation may further stimulate consumption.
This article was first published in the Budapest Business Journal print issue of February 7, 2025.
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