Hungary slashes growth forecast as economy stumbles ahead of high-stakes election

Hungary’s government has sharply downgraded its economic growth forecast for 2025, highlighting the mounting fiscal and industrial headwinds facing Prime Minister Viktor Orbán ahead of what is shaping up to be his most challenging election since returning to power.

Economy Minister Márton Nagy announced that gross domestic product (GDP) is now expected to grow by just 1% this year — a significant downgrade from the previously revised 2.5% projection and a far cry from the initial forecast of 3.4%, Caliber.Az reports, citing foreign media.

Looking ahead to 2026, growth expectations have also been scaled back, with the government now predicting a 3.1% expansion, down from 4.1%.

Orbán’s earlier pledge of a “flying start” to the year has faltered, as Hungary grapples with stagnating output and weakening consumer sentiment. “The economy may have stagnated in the second quarter and may grow significantly less than forecast in the second half,” Nagy said, noting that the economy had already contracted in the first quarter, raising fears of a double-dip recession.

Following the announcement, the forint weakened 0.4% against the euro, marking the worst performance among 23 emerging-market currencies tracked on the day. Markets are bracing for official second-quarter GDP data, due for release on July 30.

Hungary’s industrial slowdown — particularly in battery production, a sector Orbán had hoped would drive economic expansion — has weighed heavily on the outlook. Compounding the downturn, retail sales, which the government had previously suggested would offset industrial weakness, are now also showing signs of fizzling, Nagy confirmed.

Businesses across the country have been battered by a series of ad hoc government interventions, including price controls, government-mandated wage hikes, and extraordinary levies imposed to plug budget gaps. These measures have eroded business confidence, pushing sentiment to its lowest level in nearly five years, according to the GKI Economic Research Institute’s July 24 report.

Still, the government remains committed to maintaining upward wage momentum. “The government wants businesses to nonetheless stick to double-digit minimum wage increases next year,” Nagy said.

Hungarian consumers, meanwhile, remain deeply pessimistic amid an enduring cost-of-living crisis, which has contributed to the rapid ascent of Peter Magyar’s opposition Tisza party, now leading in most opinion polls ahead of the April 2026 elections.

In an attempt to regain economic and political ground, the government has rolled out targeted stimulus measures and expanded tax incentives, including lifetime income tax exemptions for mothers. Despite these moves, Nagy insisted that the government still plans to meet its revised budget deficit target of 4.1% of GDP for this year.

That fiscal target could prove critical in staving off a credit rating downgrade. Hungary is currently rated at the lowest investment grade by S&P Global Ratings, which in April revised the country's outlook from stable to negative, citing growing fiscal risks and election-driven spending.

“We need to avoid a downgrade,” Nagy emphasized, acknowledging the precarious balance between political imperatives and financial credibility.

By Vafa Guliyeva