Growth prospects improved modestly at the end of summer, supported by stronger export activity at large multinational companies, while weaker construction, poor harvests and lost Paks output weighed on activity. Industrial production rebounded by 1.7% in July, but the manufacturing recovery remains narrowly based and export-led: despite the ramp-up of BMW, BYD, CATL and other projects, net exports may need roughly one more year to support growth. Our 2026 GDP-growth forecast is 1.6%.
EU-funded transport projects are more likely to help in 2027. Residential construction growth reached 40% in Q2, but suspended Home Start and brownfield projects may curb momentum. Private consumption remains the main growth engine, supported by rapid real-wage growth and a government benefit package exceeding HUF 2,000bn; we expect consumption growth to slow from 4.8% in 2026 to around 4% in 2027. Over two to five years, guest-worker restrictions could reduce GDP by 0.2-0.8%.
In August, RRF project pre-financing pushed the monthly deficit to HUF 2,311bn; excluding it, the deficit was HUF 124bn, HUF 115bn better than a year earlier, mainly because of HUF 418bn in operating-cost savings. RRF funding should arrive by December, leaving the annual cash deficit unaffected. The Contingency Fund, around 0.5% of GDP, supports achievement of the 7.5% deficit target.
Inflation rose from 1.2% to 1.3% in August, below the 1.4% consensus, and core inflation has remained around 2% since May. International fuel prices, particularly for diesel, remain an upside risk: instead of a general price cap, the government will provide HUF 5,000 per vehicle per month during the final four months of the year. Inflation may accelerate to 2.3% by year-end and average close to 1.8% in 2026; gas prices above EUR 70 pose a further upside risk.
The National Bank of Hungary (MNB) kept the policy rate unchanged at 5.5% in September. From 1 January 2028 the inflation target will fall from 3% to 2.5%, with a tolerance band of one percentage point. We expect easing to resume in November or December if geopolitical risks recede and the government's long-term fiscal plan is received favourably by markets.
