Consumption and services remain the main drivers of growth, with investment still weak and the budget deficit forecast to reach 7.2% of GDP.
MBH expects growth to accelerate to 2.5% in 2027 and 3% in 2028, provided EU funding inflows, new industrial capacity and improving external demand support the recovery.
GDP increased 1.7% in the first half of this year, primarily supported by household consumption. Actual household consumption rose 4.1% and household consumption expenditure increased 4.5%, while investment volume fell 6.3%.
“We expect GDP growth of 1.8% this year, but the medium-term picture could improve if the use of EU funds accelerates, corporate investment picks up, and new industrial and technological capacity meets growing external demand,” said Zoltán Árokszállási, director of MBH Analysis Center.
“It is encouraging that industrial production is finally showing meaningful growth this year after a long period, and it is also good news that German industrial sentiment indicators are improving despite the situation in Iran,” he added.
Significant external risks remain, however. Structural problems in the European economy, geopolitical tensions and fiscal consolidation could restrain growth. Deficit reduction needed to prepare for euro adoption could also limit resources available to the economy.
Unexpectedly favorable price developments in recent months pushed annual inflation down to 1.2% in July, close to a 10-year low.
“Amid this positive turnaround, we have substantially reduced our inflation forecasts for this year and next. Our current forecast puts average inflation at 1.8% in 2026, while the annual average rate of price increases could well be between 2.5% and 3% in 2027,” said Márta Balog-Béki, senior analyst at MBH Analysis Center.
“This means inflation could remain in the lower half of the central bank’s tolerance band for a sustained period,” she added.
Energy prices, the Middle East conflict and the eventual effects of drought nevertheless pose upside risks.
The forecast does not incorporate the recently announced increase in tobacco excise taxes. MBH estimates that the measure could add 0.1 percentage point to inflation this year and 0.2-0.3 percentage points next year.
The analysts also suggested that a prospective reduction in the inflation target could be easier to sustain if implemented gradually.
Labor market indicators present a mixed picture. Employment reached its highest level of the year in July, but the number of unemployed people increased for a second consecutive month.
MBH forecasts an unemployment rate of 4.6% this year and 4.5% in 2027. Wage growth is also expected to moderate.
“The period of rapid real wage growth may gradually come to an end. Wage increases exceeding 9% this year are expected to give way to growth of around 6% next year, which is more consistent with productivity improvements and sustainable economic growth,” Balog-Béki said.
The National Bank of Hungary’s summer easing cycle brought the base rate down to 5.5%, but MBH expects policymakers to hold rates steady over the coming months.
“Inflation has developed more favorably than expected, but fiscal developments and the international interest rate environment continue to warrant caution,” Árokszállási said.
“Our current expectation is that the rate will remain at 5.5% at the end of this year, while Hungary’s benchmark interest rate could fall to 5% by the end of 2027.”
A further cut before the end of this year would remain possible if inflation prospects, fall credit rating decisions and market sentiment proved favorable. However, Árokszállási said the likelihood had diminished in recent weeks as international sentiment deteriorated.
MBH has raised its year-end exchange rate forecast to HUF 370 per euro, while expecting the forint to strengthen to HUF 360 by the end of 2027.
The currency has benefited from its real interest rate advantage, low inflation and hopes of euro adoption, while geopolitical conflicts and rising energy prices have exerted pressure in the opposite direction.
The analysts said the exchange rate could temporarily weaken beyond HUF 370 per euro in the coming months. The scale of fluctuations will partly depend on whether deficit reduction meets market expectations.
MBH forecasts a general government deficit of 7.2% of GDP this year, below the government’s 7.5% target.
Strong consumption-related tax revenues, tighter control over the use of funds and gradually declining interest expenditure could help contain the shortfall. The analysts also do not expect the government to use its entire emergency reserve fund, equivalent to 0.5% of GDP.
“Fiscal developments in 2027-2028 will be crucial for euro adoption, Hungary’s risk perception and long-term economic growth. If deficit reduction can be implemented credibly, it could improve investor sentiment, supporting both the forint and growth,” Árokszállási said.
MBH expects public debt to stand at around 77% of GDP at the end of this year, before beginning a gradual decline from 2027.
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