Hungary: Economic and Political Overview
In this page: Economic Outline | Political Outline | COVID-19 Country Response
Resuming the trends observed in recent years, Hungary's GDP rebounded sharply after the softening of the COVID-19 pandemic. Nevertheless, the country’s economy contracted for four consecutive quarters from mid-2022 to mid-2023 due to high inflation, tighter fiscal and monetary policies and sluggish external demand. Despite resuming growth in Q3/2023, the IMF estimated a contraction of 0.3% of GDP for the year as a whole. Projected real GDP growth is expected to increase to 3.1% in 2024 and further rise to 3.3% in 2025. The consumption growth is anticipated to be sustained by the recovery of real income and a reduction in precautionary savings. While construction investment is forecasted to be limited due to fiscal consolidation and elevated interest rates, significant FDI in manufacturing is anticipated to stimulate machinery investment.
The public finances for 2023 have notably fallen short of the budgeted target, primarily due to a decrease in consumption tax revenues, with increased expenditure driven by inflation-related spending and higher interest payments. Therefore, the public budget deficit stood at 4.6% of GDP. Amid the positive trends in the macroeconomic landscape, the anticipation of reduced energy costs, planned decreases in capital expenditure, and the delayed recapitalization of the central bank, the projected deficit is expected to persist at 3.5% of GDP in 2024 and 2.6% in 2025 (IMF). In light of high inflation, the debt-to-GDP ratio decreased to 68.7% by the end of 2023 (from 73.3% one year earlier), still above the pre-pandemic level. However, consolidation is expected to decelerate afterwards due to ongoing high deficits and slower nominal GDP growth, with the debt ratio decelerating at a slower pace (65.7% of GDP in 2024 and 64.1% in 2025 as per the IMF). Inflation remained in double digits in 2023 (17.7%), but should gradually decrease in 2024 and 2025 (6.6% and 4.3%, respectively) due to base effects, lower commodity prices and weak consumer demand, albeit high wage growth is expected to keep service inflation persistently high.
Employment demonstrated resilience last year, with companies hesitant to reduce their workforce amid ongoing labour shortages. Unemployment stood at 3.9% in 2023 and is expected to remain relatively stable in the forecast horizon. The tight labour market is poised to support elevated nominal wage growth, with an additional boost anticipated from a projected double-digit increase in the minimum wage in 2024. Overall, GDP per capita in Hungary was estimated at USD 43,601 in 2023, still below the EU average (USD 56,970 – IMF).
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 178.12 | 212.61 | 223.41 | 240.12 | 254.15 |
| GDP (Constant Prices, Annual % Change) | 4.6 | -0.9 | 2.2 | 3.3 | 2.8 |
| GDP per Capita (USD) | 18,384 | 22,147 | 23,319 | 25,128 | 26,662 |
| General Government Balance (in % of GDP) | -7.2 | -6.3 | -4.6 | -4.0 | -3.0 |
| General Government Gross Debt (in % of GDP) | 73.9 | 73.4 | 74.7 | 73.4 | 72.4 |
| Inflation Rate (%) | 14.6 | 17.1 | 3.7 | 3.5 | 2.9 |
| Unemployment Rate (% of the Labour Force) | 3.6 | 4.1 | 4.4 | 4.2 | 4.1 |
| Current Account (billions USD) | -14.65 | 0.56 | -0.41 | -0.66 | -0.79 |
| Current Account (in % of GDP) | -8.2 | 0.3 | -0.2 | -0.3 | -0.3 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
The agricultural sector, which used to be the dominant force in the Hungarian economy for many years, now represents 3.2% of the GDP and employs 4% of the working population (World Bank, latest data available). The country has an agricultural area of 5,278k ha, around 56.7% of its territory (FAO). Cereals, fruits, maize, vegetables and wine are the main crops. More specifically, major crops include wheat (1 million ha), corn (1 million ha), and oilseeds (1 million ha) - mostly sunflower and rapeseed (0.9 million ha). According to the first 2023 estimates from the Hungarian Statistical Office, the agricultural output surpassed HUF 4.3 trillion, marking a 6.5% increase from the previous year. This growth was driven by a 25% rise in production volume, while the overall sector's output price decreased by 15%. Crop production volume increased by 44%, while livestock production saw a marginal 0.5% decrease. The substantial growth in specific crops was influenced by a low base in the preceding year.
Industry accounts for 24.6% of the country's GDP and employs 31% of the working population. Hungarian industry is very open to foreign investment, with manufacturing almost consistently ranking top receiver of foreign direct investment. The automotive and electronics sectors are the two main industrial sectors, and the manufacturing sector alone accounts for 17% of the country’s GDP. The electronics industry is one of the largest industrial sectors in Hungary, accounting for one-fifth of total manufacturing production. According to the latest figures by the Hungarian Central Statistical Office, industrial output decreased by 4.8% in the first semester of 2023 compared to the same period one year earlier (with -3.4% and -26% recorded by the manufacturing and energy subsectors, respectively).
The services sector contributes 57.2% of GDP and employs almost 64% of the labour force. Trade, tourism and finance account for the largest share of activity and employment within the tertiary sector. In recent years the added value produced by the ICT sector increased by more than one-fifth, to USD 20 billion, with the digital economy currently making up more than 20% of Hungary's overall gross value added. The banking sector consists of 40 institutions: 21 commercial banks, 11 specialised credit institutions (mortgage banks, building societies, development and trade finance banks) and 8 foreign bank branches (European Banking Federation).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 4.4 | 31.4 | 64.2 |
| Value Added (in % of GDP) | 2.7 | 25.8 | 56.4 |
| Value Added (Annual % Change) | -30.9 | 5.0 | 7.0 |
Source: World Bank, Latest data available.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
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The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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