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The main pillar of growth last year continued to be the service sector, supported by buoyant consumption and improving consumer confidence, while industry continued to act as a drag on growth due to weak external demand: growth was only 0.4% for the whole year.
“This year, we are seeing a significant turnaround in growth: in the base case, we expect GDP to expand by 2.3% in 2026, followed by growth of more than 3% in 2027. If the conflict in the Middle East causes energy prices to rise permanently and keeps investors risk-averse, growth may be slower than this,” says Zoltán Árokszállási, director of the MBH Analysis Center.
In the last months of 2025, the number of people in employment fell rapidly, but the unemployment rate did not rise significantly; rather, the rate of inactivity increased. With a rate of 4.4% in December, unemployment was virtually stagnant but rose in January.
“We do not expect a significant decline in the unemployment rate this year, and we expect an average rate of 4.4% in 2026. The labor market typically reacts to economic developments with a delay, so the acceleration of growth in the second half of the year may also bring improvements in this market,” says senior analyst Márta Balog-Béki.
The situation in the Middle East may have a delayed impact on the labor market. Rising gas and oil prices may put pressure on companies due to increasing overhead and transportation costs. In such a situation, one way to reduce costs could be to cut the workforce or make wider use of part-time employment.
Since it would also be beneficial to world trade if oil and gas supplies were to continue uninterrupted, analysts believe there is still a chance of an agreement being reached before these factors have a significant impact on the domestic labor market.
Towards the end of last year, inflationary trends became increasingly favorable, and January data already showed that inflation could remain below the central bank’s 3% target in the coming months. The extension of the margin cap until the end of May will further curb food price increases, and its future phase-out is also expected to have only a moderate impact, partly due to the price monitoring system and partly due to improving purchasing conditions.
“Price pressure is more moderate than we expected, so we have lowered our inflation forecast for 2026 from 3.5% to 2.9%. Despite wage increases and transfers, corporate pricing behavior has remained restrained, which is an encouraging sign,” says Balog-Béki.
However, the conflict in the Middle East could worsen the inflation picture through rising fuel prices and a weakening of the forint. Retail fuel pricing is not directly linked to the price of crude oil, so the full extent of the oil price increase will not be reflected at filling stations in the first instance, but the effect could still lead to a significant price increase (HUF 20-30 per liter), which the weakening of the forint could exacerbate.
In the event of de-escalation, however, fuel prices may even fall after a brief rise, in which case the temporary weakening of the forint would not have a price-raising effect.
Better-than-expected inflation in January enabled the National Bank of Hungary (MNB) to cut interest rates in February, bringing the benchmark rate down to 6.25% after a year and a half of stagnation. The market subsequently priced in further interest rate cuts in March, but amid the Iran conflict, the MNB will likely wait and see.
“Favorable inflation trends and domestic interest rates that are still high by regional standards would, in themselves, allow further monetary easing. However, the situation in the Middle East could upset this if high oil and gas prices become persistent and the pressure on the forint does not ease,” notes Árokszállási.
If the war in Iran is resolved quickly and the fighting ends, the base rate could fall below 6% this year. In this case, the cycle of interest rate cuts could continue in 2027, but the extent of this will largely depend on inflationary trends next year. According to MBH Bank’s analyst forecast before the outbreak of the Middle East conflict, the MNB’s key rate could be around 5% at the end of 2027.
In recent months, the forint has strengthened to below 380 due to the weakening of the dollar internationally, strong domestic real interest rates, and favorable investor sentiment. The resilience of the domestic currency continued in February, despite the renewed strengthening of the dollar and the MNB’s interest rate cut.
However, the crisis that erupted in the Middle East has significantly weakened the forint. According to experts, the movement of the forint in the near future will clearly be influenced by the war: in the event of a rapid settlement, the euro exchange rate could return to 380 forints or below, but in the event of further escalation, the forint could fall even further from the recently reached level of 385.
This article was first published in the Budapest Business Journal print issue of March 13, 2026.
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