The International Monetary Fund (IMF) recently concluded its Article IV Consultation with Hungary, conducted by a mission led by Anke Weber. The visit took place in Budapest from June 5 to 17, and the findings were shared in a concluding statement.
Hungary faces economic challenges, including stagnation in output over the past three years and inflation levels exceeding the central bank's target of 3 percent. The IMF staff noted that regulatory measures such as price caps and windfall taxes have created market distortions and uncertainty. Despite efforts at fiscal adjustment, public debt remains high due to elevated financing costs. The IMF emphasized the need for domestic policy reforms to bolster resilience amid an unstable external environment.
Looking ahead, the IMF forecasts modest growth of 0.7 percent in 2025, driven by consumption and favorable wage dynamics. Growth is expected to rise to 2 percent in 2026 and converge to around 2½ percent by 2030. Inflation is projected at 4.5 percent in Q4:2025, gradually aligning with the central bank's target by 2027.
Risks to Hungary's growth include potential impacts from global trade tensions and geopolitical issues affecting commodity prices. Delays in fiscal adjustments could increase concerns about debt sustainability, while lack of progress on governance reforms may affect EU funding.
The IMF highlighted that current policies might not meet Hungary's budget targets for deficits of 4.1 percent and 3.7 percent of GDP in 2025 and 2026 respectively. Additional fiscal efforts are needed to preserve fiscal space and manage long-term spending pressures related to population aging.
On monetary policy, maintaining tight conditions is deemed necessary to bring inflation back on target. "Monetary policy has been appropriately cautious," stated the IMF staff, advising against premature rate cuts given persistent inflation risks.
In terms of financial stability, Hungary's banking system is described as well-capitalized but facing emerging vulnerabilities like increased foreign exchange loans and commercial real estate vacancies.
Productivity growth requires comprehensive reforms addressing firm dynamism impediments such as high regulatory barriers. Industrial policies should be targeted effectively without substituting broader structural reforms.
Energy security enhancements are crucial for competitiveness and facilitating a green transition through diversified energy supply and renewable generation efforts.
Governance reforms remain essential for creating a predictable business environment conducive to growth, with recent judicial reforms being a positive step according to the IMF.
The mission expressed gratitude towards Hungarian authorities for their collaboration during this consultation process.