Hungary: The re-emerging convergence narrative is changing the outlook

GDP growth data at the beginning of the year came as a pleasant surprise: GDP increased by 1.7% y/y and by 0.8% q/q. Accordingly, we have slightly revised our forecast upwards from 1.4% to 1.7% for 2026. Household consumption is set to remain the main driver of growth this year, while investment activity may recover moderately. Over the medium term, risks to the growth outlook are slightly skewed to the upside, supported by improving business sentiment and the likely release of previously frozen EU funds. Inflation dynamics so far this year have been particularly favorable; however, the recent lack of inflationary pressure in the economy is largely attributable to administrative price-reduction measures. Looking ahead, inflation is to gradually pick up in the coming months. Following the very low inflation prints in the first five months of the year, we have revised down our full-year average inflation forecast for 2026 to 2.8%.

The policy rate stands at 6.25% and, given recent low inflation figures, the MNB will probably carry out a rate cut in June. By end-2027, the policy rate is expected to decline to around 5%. Elevated geopolitical risks, however, make it difficult for the central bank to consider a sustained rate-cutting cycle. Further easing is conditional on greater clarity regarding the fiscal position and the medium-term fiscal trajectory. Optimism has become the main market driver after the elections. The potential to unlock EU funds and the planned accession to the euro area are positive for market sentiment. EURHUF moved towards 350, while the 10-year government bond spread has narrowed significantly. Fiscal developments and investor perceptions of policy credibility will remain key factors to watch in the coming period.

Download The Full Hungary Outlook