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

Despite the upward revision of GDP figures for 2023 and 2024 by the Statistical Office, little has changed for the country from our previous forecast. The new government, in office for nearly six months, has yet to make an impression. Its main economic initiative thus far – a EUR 500m loan from Hungary – remains undisbursed, despite having been announced half a year ago. Even once disbursed, the amount will be too small to act as a game changer, and concerns persist over whether the money will be used either efficiently or productively. Another troubling development is the new government’s first budget, which violates the recently adopted fiscal rules. The projected deficit stands at around 4% of GDP, while public debt is set to exceed 60%. Although this may not jeopardise fiscal stability in the short term, it does signal reckless fiscal management. Inflation has flared up again, exceeding 4% at the end of 2024, largely due to inconsistent government price controls: periodic caps on food prices – lasting for a month and imposed every three months – keep prices down during the cap period, but cause them to rebound to an even higher level afterwards. Real wage growth – the primary driver of economic activity in 2024 – has slowed markedly. With the government showing little willingness to implement measures in support of wage growth, this risks turning negative, depressing consumption and overall economic activity. Despite these challenges, we forecast GDP growth of 2.8% in 2025, slightly above the 2024 rate, due to the expected recovery in the European economy. This is also higher than our October forecast, reflecting the revised GDP figures. Inflation is expected to ease somewhat, but will remain elevated, probably at around 3%.