Hungary’s economy stalled in Q1 2025, casting further doubt on the viability of the Orban government’s optimistic growth forecasts. Detailed data released on June 3 showed that GDP remained flat in unadjusted terms and contracted by 0.4% year on year (chart) on a seasonally adjusted basis. Compared with the previous quarter, the economy shrank by 0.2%.

Hungary’s economy has struggled to regain momentum since mid-2022, alternating between marginal gains and contractions. Seven of the past 11 quarters have recorded negative growth, including four of the last six. The country exited a technical recession late last year, only to slip back into decline.

According to KSH, industrial output fell 4.6% and construction shrank by 5.1% y/y in January-March. While household consumption grew by 4.1%, it was not enough to offset the 10% decline in investments.

On the consumption side, household spending contributed 2.2pp to growth, which was fully offset by negative contributions from investment (-1.9pp) and trade (-0.3pp). Services boosted GDP by 0.7pp, while industry weighed 0.7pp and the construction sector 0.2pp on the headline figure.

Analysts are now scrambling to revise forecasts downward. ING Bank expects full-year growth to remain near 1%, noting downside risks dominate.

Weak business and consumer sentiment remain the biggest structural drag and government interventions have been ineffective, or even counterproductive, said ING chief economist Peter Virovacz. 

Economic activity is pointing to stagnation seen in the past three years, based on the confidence indices and high-frequency data so far in the second quarter, commented an analyst from Erste Bank. The bank’s 0.8% growth forecast is skewed with downside risks.

Other economists said the impact of the tariff war poses further risks for Hungary, but large-scale investments coming to operations projects such as BMW’s and CATL’s in the second half could offset this.

To meet the government’s 2.5% growth target, revised from 3.4%, Hungary would need quarterly growth rates of around 2% for the remainder of the year, a pace viewed by most economists as implausible. Even if the economy were to gain 0.8% for the remaining three quarters, annual growth would barely approach 1%, financial website Portfolio.hu.hu observed.

OECD released its fresh projections, which align with forecasts by analysts. GDP is set to grow by 0.9% in 2025 and 2.4% in 2026, following a modest 0.5% expansion in 2024. The main driver of growth will be private consumption supported by rising real wages, while weak investment activity and external uncertainties continue to pose risks, it added.