Government macro forecast changes in the right direction but at the wrong time

HUNGARY - In Brief 03 Apr 2025 by Istvan Racz

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Early this week, Mr. Nagy, the economy minister, announced a scaling back of the government's 2025 GDP growth forecast to 2.5% from the 3.4% included in the annual budget, parallel to raising this year's forecast for average CPI-inflation to 4.5% from the original 3.2%. These are exactly the figures we had in our January forecast update. Moreover, the new GDP forecast appears to be at the upper end of analysts' forecast range, the one held until the end of last week, to be precise. One could say that lower real GDP growth and higher inflation could make largely the same nominal GDP as previously expected for this year, so the change should not rock the foundations of the annual budget. For sure, pensioners will have to be compensated for higher inflation, as a matter of mandatory inflation adjustment, to be paid in November retroactively through January, but the cost of that should be around HUF80bn or 0.1% of GDP only. A convenient and happy story, eh? Well, the little bit of a problem is Mr. Trump throwing a rain of tariffs on the world last night, just two days after Mr. Nagy's announcement of the new figures. One could ask here to what extent these tariffs were included in the government's amended macro forecast: after all, the 25% rate on imported cars had been announced already, and the 20% reciprocal tariffs on everything else, if that is indeed the case, were kind of suggested. The answer to this question is actually quite easy: the new tariffs were not taken into account in the new government forecast, and the reason we know this is that the increase in expected inflation provides for most of the lower GDP growth figure. Employers certainly will not pay higher...