These policies could significantly impact both growth and inflation trends. In Hungary, growth might pick up in the second half of the year, driven primarily by the launch of production at three major foreign-owned factories (BYD, BMW, CATL) and the revival of domestic consumption.
As a result, Equilor Investment Zrt. projects GDP growth to reach 2.2% this year and 3.4% in 2026. The weakening of the forint observed in recent months has led to additional inflation, which may settle slightly above last year’s level at 4%. Meanwhile, the forint’s exchange rate could further decline, with the euro possibly reaching around 420 forints by year-end, Equilor reckons.
With Donald Trump’s re-election, U.S. economic policy has taken a less predictable turn, according to the annual outlook by Equilor, which is celebrating its 35th anniversary this year. The company highlights that Trump’s campaign promises could have a significantly negative impact on both the global and U.S. economies. However, it is possible that these measures will be diluted or not implemented at all.
The U.S. economy grew dynamically in 2024, successfully reducing inflation; however, upward risks remain. The most significant uncertainty stems from Trump’s trade policies and threatened tariffs, which could heavily influence growth and inflation.
Although they were only mentioned in passing Trump’s inauguration speech, Equilor anticipates that tariff negotiations with China, the European Union, and other countries, such as Canada and Mexico, could begin almost immediately, focusing primarily on sectors deemed critical for national security, such as defense, medical equipment, and energy.
Outside the U.S., Equilor expects subdued economic activity worldwide. European growth will likely remain extremely restrained, while China is unlikely to stimulate its economy sufficiently to achieve substantial growth. U.S. tariffs, if introduced, could further exacerbate this unfavorable situation.
In the Eurozone, concerns over inflation have given way to doubts about growth, now the former has been brought down to the 2-2.5% range. Germany, which accounts for nearly 30% of the region’s economy, continues to struggle in its industrial sector due to high energy costs and declining demand.
Following last year’s growth of just 0.7%, it may only reach 1.1% this year. Recovery from the energy and inflation crises remains slow, with manufacturing data consistently showing a deceleration, noted Gergely Muhi, Equilor’s chief analyst.
The European Central Bank is reducing interest rates faster than expected. In contrast, the U.S. long-term interest rate trajectory may exceed expectations, significantly narrowing the maneuvering room for emerging market central banks such as Hungary’s.
Here, household consumption may continue to expand in 2025, supported by real wage growth. The cautious spending pattern is expected to subside gradually, with consumption further fueled by the interest payments flowing out of the government bond market.
Growth will also benefit from the start of production at those three major automotive factories in the second half of the year, although their contribution to GDP will heavily depend on global automotive demand. These factories are expected to increase GDP by 0.6% this year and 0.8% in 2026, potentially reaching 2% by 2030.
Equilor predicts that agriculture’s contribution to GDP could be significant due to a low base, while Hungary’s key export market, the German manufacturing sector, shows no signs of a meaningful turnaround.
Equilor expects the Hungarian National Bank (MNB) to implement a total interest rate cut of 50 basis points this year, although the next reduction is not likely until the third quarter, depending on inflation trends and the forint exchange rate.
The weakening of the forint in recent months, partly due to external factors such as Trump’s victory and the subsequent strengthening of the dollar, has contributed to additional inflation. Last year’s average euro-forint exchange rate was 395.4, and the Hungarian currency is now nearly 5% weaker.
Approximately 25% of the depreciation could be reflected in consumer prices. If the exchange rate remains at its current level, inflation could increase by more than 1%. Equilor anticipates further depreciation, with the euro potentially reaching HUF 420 by the end of the year. Average inflation in 2025 is expected to be 4%, decreasing to 3.5% in 2026.
The heightened risks and the stock market rally of recent years pose challenges for investors. However, Muhi emphasizes that good returns can be achieved even in such unfavorable conditions with the right strategies. According to Equilor’s chief analyst, the short-term impact of expected economic policies suggests that, among global regions, the U.S. market could perform the best.
Protective tariffs may benefit the U.S. economy in the short term, while stable economic growth and the increasing efficiency brought by the widespread adoption of artificial intelligence solutions are boosting the profitability of American companies. Significant stock market gains are unlikely, however, as equity prices already reflect a highly optimistic outlook. Nonetheless, single-digit stock market growth could accompany earnings growth per share.
Equilor’s analysis recommends keeping some powder dry by overweighting the low-risk portion of investment and savings portfolios compared to the usual ratio. After the next interest reset of the Hungarian Government Securities Plus (PMáp), they may become less attractive.
Among retail government bonds, FixMáp currently appears most appealing, and a new series of government bonds could also emerge as attractive options. Among government securities, short-term U.S. bonds could offer favorable alternatives, supported by the strong dollar.
Even in uncertain circumstances, good investment opportunities can be found with proper risk management and attention, the investment firm argues. Equilor suggests examining the shares of retail companies in Poland, where household consumption has declined similarly to Hungary, as their prices could rebound with increasing consumption.
Notable examples include Central Europe’s leading discount household retailer Pepco, and Jeronimo Martins, the operator of Poland’s largest food discount chain, Biedronka. Among Hungarian shares, Equilor sees the most growth potential in Gránit Bank, with a one-year target price of HUF 18,306 (it should perhaps be noted that in 2022, Gránit Bank acquired a 50.1% stake in Equilor) and Magyar Telekom, where the one-year target price is HUF 1,550).
This article was first published in the Budapest Business Journal print issue of January 24, 2025.
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