WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

In Q1 2025, GDP fell by 0.4% year on year. The performance of industry and construction declined considerably; that of agriculture marginally. A modest 1.1% expansion in the largest sector – services – saved the economy from an even bigger decline. Final consumption increased by 3%; gross fixed investment recorded a large fall of 10.1%, partly on account of reduced EU transfers. Both exports and imports virtually stagnated (net exports were marginally negative). Disinflation has not gone according to plan: in May, the consumer price index was 4.5% and core inflation 4.8%. By April, the economy had accumulated 71% of the fiscal deficit envisaged for the full year. There is no sign yet of a positive turnaround in the disappointing overall economic performance. Price caps to curb inflation only hide the inflationary pressure. The ruling Fidesz party’s poor showing in public opinion polls ahead of the general election in less than a year makes it highly unlikely that there will be any improvement in the fiscal balance, as Prime Minister Orbán will most likely resort to his tried-and-tested strategy from previous election campaigns of issuing handouts at the expense of fiscal balance. Nevertheless, the second half of the year could bring some improvement to the economic performance, provided a few large foreign investments in the automotive and battery-manufacturing sectors come to fruition. The chaotic conditions currently prevailing in global trade – especially in the automotive industry – render the market prospects for goods produced in the new capacities highly uncertain. Overall, GDP growth for this year is expected to be around 0.7%; the years 2026 and 2027 could see a somewhat better growth performance in excess of 2%.