EBRD Revises Economic Growth Forecast for Hungary Amid Middle East Crisis Impact

The European Bank for Reconstruction and Development (EBRD) anticipates Hungary's economy will expand by 1.8% in 2024 and 2.5% in 2025. This forecast represents a slight downward revision for the current year, from a previous estimate of 2.0% to 1.8%, while the projection for next year remains unchanged. The bank noted that Hungary's economy grew by an estimated 0.5% last year.

Looking ahead, the EBRD suggests that growth could accelerate from 2027, partly due to the expected resumption of European Union-funded investments following the April parliamentary elections. A key priority for the new Hungarian government is the reactivation of frozen EU cohesion funds, which amount to approximately 9% of the country's GDP. Additionally, securing funds from the EU's recovery and resilience facility, representing 5% of GDP, by the end of August is crucial.

The bank highlighted that the successful release of these EU funds could lead to reduced borrowing costs. Hungary's 10-year sovereign debt yield was around 6.2% at the end of April, significantly higher than Germany's comparable Bund yield of 2.5%. Furthermore, the European Commission estimates that unlocking these EU disbursements could boost Hungary's GDP growth by nearly one percentage point.

The EBRD's updated forecast also takes into account the impact of the Middle East crisis, which has influenced global economic conditions. However, the bank's primary focus for Hungary remains on the domestic economic policies and the crucial role of EU funding in driving future growth.