The Hungarian economy faces challenges: slow consumption growth and question marks

The income of Hungarian households is increasing, but the desire to buy does not follow this growth. Although real wages have been increasing for more than a year, the retail turnover shows only a moderate expansion. Inflation has made households more cautious in their spending and prices continue to appear high to consumers. According to Gábor Regős, the chief economist of Gránit Alapkezelő, in order to start consumption, households must make sure that their income situation improves permanently.

The government originally expected GDP growth of 4 percent for this year, but due to weak European and German economic performance, this was reduced to 2.5 percent in March. Gábor Regős believes that real growth will not even reach this level, and rather a GDP expansion of 1.8-2.2 percent is expected. Low internal demand and weak external demand pose a significant challenge to the economy.

Inflation has fallen, but high prices still leave households feeling insecure about spending. In order for consumption to rebound, it is necessary for households to have confidence in the stability of prices and the improvement of their own income situation. According to Zoltán Árokszállási, head of MBH Bank’s Analytical Center, despite the increase in real wages, consumption can only start if war fears subside, which continue to restrain the population’s willingness to spend.

The slowly recovering consumption is also a surprise for the government. The Minister of National Economy, Márton Nagy, previously emphasized that an increase in real wages is essential for economic growth, and the government therefore supported a significant increase in the minimum wage. Last week, Finance Minister Mihály Varga forecast GDP growth of between 1.8 and 2.2 percent for this year.