Hungary's Economic Outlook

BUDAPEST (Reuters) – Hungarian gross domestic product (GDP) growth is projected to be "very close to zero" in the third quarter, falling significantly below market expectations, as stated by Economy Minister Marton Nagy on Thursday.

Since 2010, Prime Minister Viktor Orban has faced challenges in reviving Hungary's economy after a downturn last year, which was influenced by a surge in inflation exceeding 25% in Q1 2023, the highest within the European Union.

Economists surveyed by Reuters forecast third-quarter growth at an annual 1.3%.

Nagy mentioned at a business conference, "Our internal growth is secure. But external growth does not depend on us." He acknowledged that with exports comprising 80% of GDP and heavy dependence on the German economy, external factors pose significant challenges.

Reiterating his confidence, Nagy stated that Hungary has moved past the inflation crisis, citing recent data that indicate September inflation has finally reached the Hungarian central bank's 3% target for the first time since 2021. He emphasized, "Inflation is not an issue… Actual data have been coming in below expectations continuously."

However, his views seem to contradict the central bank's cautious approach concerning potential interest rate cuts from the EU's highest benchmark rate of 6.5% due to financial market risks. Deputy Governor Barnabas Virag suggested a likely pause in interest rate reductions next Tuesday due to recent geopolitical tensions and a shifting U.S. rate outlook, which have driven the forint to 18-month lows.