The 2024 European Commission Country Report on Hungary offers a comprehensive analysis of the nation's economic performance, fiscal health, and structural challenges within the framework of the European Semester. Following a contraction of 0.9% in 2023, the Hungarian economy is projected to rebound with growth rates of 2.4% in 2024 and 3.5% in 2025. Despite the economic downturn, employment levels remained stable, and the employment rate continued to surpass the EU average, indicating resilience in the labor market.​

In recent years, expansionary economic policies, including tax cuts, pension increases, and price and interest rate caps, have supported household consumption. However, these measures have also contributed to significant vulnerabilities, such as large current account and budget deficits and heightened inflationary pressures. Subsidized lending schemes have led to housing market distortions without substantial improvements in productivity, while frequent credit market interventions have impeded the effective transmission of monetary policy.​

The removal of price caps in late 2022 resulted in a surge in inflation, reaching an annual average of 17% in 2023—the highest in the EU. Tight monetary policy measures have since reduced inflation to below 4% by early 2024, although core inflation remains elevated at 6.5% as of March 2024. Nominal wage growth has persisted, driven by a tight labor market and significant increases in the minimum wage. The current account balance improved from a deficit of 8.3% of GDP in 2022 to a surplus of 0.3% in 2023, primarily due to declining energy import prices and reduced import demand.

Hungary continues to face vulnerabilities related to external and government financing needs. An in-depth review conducted as part of the macroeconomic imbalance procedure highlighted that, despite some improvements in the external environment, policy progress has been limited, leaving Hungary susceptible to both external and domestic shocks. The budget deficit remains a significant challenge, with tax revenues eroded by previous tax cuts and elevated spending levels maintained since the pandemic. Interest expenditure has risen sharply, from 2.2% of GDP in 2019 to 4.7% in 2023, making Hungary's debt servicing costs among the highest in the EU. The 2023 budget deficit exceeded the government's target, reaching 6.7% of GDP. Without additional measures, the deficit is projected to remain elevated at 5.4% in 2024 and 4.5% in 2025, potentially stalling debt reduction efforts.​

The benefits of economic growth have been unevenly distributed. Employee compensation has grown more slowly than domestic income, and social transfers as a percentage of GDP are low compared to the EU average. High inflation has eroded the real value of social and family benefits, and the tax and benefit system's capacity to reduce inequalities remains limited. In 2023, actual individual consumption per capita stood at 68% of the EU average, the second lowest in the EU, indicating a deterioration in material welfare.​

Structural challenges continue to impede productivity growth. Hungary's economy is heavily integrated into global value chains, primarily engaging in assembly activities that are labor- and energy-intensive but add limited value. Policies aimed at reducing production costs have reinforced this specialization, attracting investment in cost-sensitive and energy-intensive sectors. While investment in machinery and equipment is high, investment in intellectual property remains below the EU average. The inward foreign direct investment stock has declined over the past decade, reflecting a deteriorating business environment and a shift towards domestic ownership in utilities and services.​

Energy policy presents additional challenges. Gas continues to play a significant role in Hungary's energy mix, and reliance on foreign electricity supply remains substantial. The draft updated national energy and climate plan outlines ambitious goals for improving energy interconnectedness but lacks specific measures to enhance energy efficiency, security, and renewable energy adoption. Dependence on imported fossil fuels, particularly from Russia, remains high, and progress in reducing this reliance has been slow.​

In summary, while Hungary's economy is poised for recovery, significant challenges persist. Addressing fiscal vulnerabilities, enhancing social protection systems, and implementing structural reforms to boost productivity and energy efficiency are crucial for ensuring sustainable and inclusive economic growth.