OECD Forecasts GDP Contraction for Hungary in 2023, Rebound in 2024

Analysis

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The OECD forecasts Hungary's GDP will fall 0.6% this year and grow 2.4% in 2024 in its biannual Economic Outlook published on Wednesday, according to a report by state news wire MTI.

The OECD attributed the contraction in 2023 mainly to falling private consumption and investment in the first part of the year.

It projected a gradual pick-up in household real incomes and private consumption, supported by disinflation, but said that public consumption and investment would provide less support to growth in 2024 and 2025 as the government aimed to reduce the budget deficit.

If core inflation is more entrenched than expected, interest rates could stay higher for longer, affecting consumption and investment, while a new surge of energy prices would have similar effects, the OECD said. Failure to reach an agreement on the delivery of European Union funding could curb investor confidence, increase the cost of capital, and put renewed pressure on the exchange rate, it added.

The OECD said restructuring energy support by moving from price caps to targeted cash transfers to support vulnerable households would increase incentives for energy savings and energy improvements, reduce fiscal exposure to changing global energy prices, and lower Hungary's dependence on energy imports. Strengthening competition in the transport, professional services and telecommunications sectors could boost productivity growth, while lower telecommunications prices and a broader diffusion of digital skills would help Hungarian companies bridge the digital gap with peer countries, it added.

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