However, both growth and inflation forecasts remain subject to a wide range of risks, including international geopolitical tensions, uncertain global demand, and the persistence of government intervention in the domestic market. Inflation is expected to remain elevated, while wage growth is likely to slow as the labor market cools, and the forint may continue to experience ongoing volatility, influenced by both international and local policy shifts.
Speaking at a press conference in Budapest, K&H Bank’s chief analyst, Dávid Németh, stressed the difficulty of making precise predictions in the current economic climate.
“The outlook for both growth and inflation is highly uncertain, primarily due to persistent geopolitical tensions and unpredictable global events,” he said. The so-called ‘Trump effect’ in U.S. politics, ongoing trade disputes, the continuing armed conflict between Russia and Ukraine, as well as Israeli attacks on Iran are just some of the factors exerting significant influence on global and Hungarian economic performance.
These unpredictable developments, Németh noted, are making it particularly challenging for analysts and policymakers to chart a reliable path forward.
According to the bank’s latest forecast, the Hungarian economy is expected to expand by only 0.5% in 2025, echoing the minimal progress made last year. A stronger rebound is anticipated in 2026, with GDP growth forecast to reach between 2.5% and 3%. However, Németh cautioned that any acceleration will depend on stabilizing external and domestic conditions, and that risks remain on the downside if further international shocks occur.
When it comes to inflation, the prognosis is similarly cautious. K&H expects average annual inflation to stand at 4.3% in 2025, moderating to around 4% in 2026. Németh explained that these projections could change depending on a variety of factors, particularly the duration and extent of government price controls.
“There are significant questions about how long the official price caps will remain in effect and whether new interventions will be introduced. Food prices are especially exposed to weather-related risks, and international prices for some agricultural commodities, such as cocoa, have increased dramatically,” the analyst said.
“On top of that, government measures like tax incentives or direct support for households could push up domestic demand and contribute to inflationary pressure,” Németh added. This means that the Consumer Price Index could remain stuck at the upper edge of the central bank’s target band of 2-4%.
Turning to wages, the environment remains challenging for employees and employers alike. High inflation expectations have a substantial impact on pay negotiations and household budgets. This year, wage growth is expected to slow further after several years of stagnation and rising unemployment.
Németh pointed out that corporate investment has declined in recent years, resulting in weaker productivity growth and leaving little room for meaningful wage increases. Nevertheless, as the economy gradually recovers from stagnation, a tightening labor market could eventually spur a new round of pay rises, he added.
K&H forecasts average gross wage growth of 7.5-8% in 2025, with an acceleration to around 9% possible in 2026 as the economic recovery takes hold.
As for the forint, monetary policymakers at the National Bank of Hungary (MNB) are likely to remain cautious for the foreseeable future, given continued inflation risks and ongoing international tensions. According to Németh, a single interest rate cut may be on the table this year, with the possibility of two if external conditions take a significantly more favorable turn.
The forint has recently shown some resilience, buoyed by higher interest rate differentials that have attracted international investors to Hungarian assets.
“In stable market conditions, this rate gap could continue to support the forint, but as we have seen in recent months, external shocks, like Israeli military action in Iran, can still cause sudden bouts of forint weakness,” Németh explained. He warned that increased volatility is likely to persist, with the euro-forint exchange rate expected to fluctuate within a broad range, between 395 and 415.
Németh also highlighted the sensitive balance policymakers must strike between supporting growth and maintaining currency stability. Any missteps or new shocks could send the forint swinging sharply in either direction, making it difficult for businesses and consumers to plan. The MNB will likely err on the side of caution in its decisions, with stability as its guiding principle, he suggested.
Looking forward, K&H’s analysts emphasize that a mix of domestic and international forces will shape the fate of Hungary’s economy and its currency. In addition to the decisions made by major central banks and global trade developments, the country remains vulnerable to further geopolitical risks, commodity price fluctuations, and potential shifts in European Union policy.
The coming year is poised to present challenges but may also open up opportunities for a return to more robust and sustainable growth, if external conditions permit. For now, both investors and households are advised to prepare for ongoing uncertainty and volatility in both the economic outlook and the forint’s performance, according to Németh.
This article was first published in the Budapest Business Journal print issue of June 27, 2025.
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