Good news, bad news: a brief update to last week's monthly report

HUNGARY - In Brief 26 May 2025 by Istvan Racz

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Our latest monthly report was released on May 20. Here follows a list of the most important items, which have shown up since then.1. In the report, we wrote of the decelerating trend of nominal wage growth, which is good news for inflation but bad news for growth. We referred to the fact that by February, nominal wage growth slowed down to 9.3% yoy, from 11% yoy in December and 13.2%, on average, in full-year 2024. Now we have the March data as well, showing further deceleration to 8.4% yoy. This suggests that the risk of a slowdown of wage growth undermining consumption growth later this year is real. The government expect 4-5% real wage growth for 2025, but there was only 3.5% real wage growth in March, and there can be further deceleration later on if the economy remains weak.2. We still do not have a full breakdown of the disastrous Q1 GDP data, but KSH have released a summary figure on fixed investment, the volume of which fell by no less than 11.8% yoy in that period. On could think that such a poor figure could be realised only against a strong base, but no: in Q1 2024, fixed investment fell by an even worse 16.2% yoy. At this moment, no breakdown is available yet, but it looks like this much weakening must have come mainly from the private sector, as the government's spending on their own fixed investment and on EU-sponsored development programs did not fall further early this year, after 2024's sizeable reductions in both areas. Anyway, the materially negative balance of FDI flows (-2.1% of GDP, annualised, in Q1) appears to point in this direction.3. We also wrote of housing prices rising 13-14% yoy recently, working against the reduction of inflationary expe...