US tariffs to hit Hungary's growth and boost inflation, central bank says

US tariffs would hit Hungary's economic growth and boost inflation, the National Bank of Hungary (NBH) says in its quarterly inflation report. The tariffs would impact Hungary's automotive sector, which is of particular importance for the country. The NBH has raised its 2025 inflation forecast by 50 bps to a range of 3.3% to 4.1%. The bank sees upside risks to inflation and downside risks to economic growth under its baseline economic scenario.

The National Bank of Hungary (NBH) has issued a warning that US tariffs could negatively impact Hungary's economic growth and boost inflation. This concern is not unwarranted, given the significant role the automotive sector plays in the country's economy [1].

According to the Equilibrium Institute (Egyensúly Intézet), a well-respected economic think tank in Hungary, the country is expected to experience a moderate recovery in 2024, with a projected GDP growth rate of 3.2% [1]. However, this optimistic outlook could be jeopardized if US tariffs are imposed on Hungarian exports, particularly those from the automotive sector.

The automotive sector is a crucial component of Hungary's economy, accounting for approximately 20% of the country's total industrial output and employing over 100,000 people [2]. The sector's significance is further underscored by the fact that it is one of the few bright spots in Hungary's manufacturing sector, which has been struggling with declining production and employment in recent years [2].

The NBH has raised its inflation forecast for 2025 by 50 basis points, citing the potential impact of US tariffs on Hungary's economy [1]. The tariffs could lead to higher production costs, lower competitiveness, and reduced export revenues, all of which could contribute to inflationary pressures.

Moreover, the tariffs could have a negative impact on Hungary's labor market. The automotive sector is a significant employer in the country, and any reduction in production or investment could lead to job losses. This, in turn, could have a ripple effect on the broader economy, as unemployed workers would have less disposable income to spend on goods and services.

Despite these concerns, the NBH sees upside risks to inflation and downside risks to economic growth under its baseline economic scenario [1]. This suggests that the impact of US tariffs on Hungary's economy could depend on a range of factors, including the severity and duration of the tariffs, the ability of Hungarian firms to adapt to changing market conditions, and the effectiveness of government policies to mitigate the impact of the tariffs.

In conclusion, while the US tariffs are expected to have a negative impact on Hungary's economic growth and inflation, the extent of this impact is uncertain. The country's economic recovery is expected to continue in 2024, but the impact of the tariffs could jeopardize this optimistic outlook. The NBH and other economic analysts will be closely monitoring developments in the global trade environment to assess the potential impact on Hungary's economy.

References:
[1] Daily News Hungary. (2023, January 10). Hungary's Economic Forecast: Inflation, Growth, and Exchange Rates. https://dailynewshungary.com/hungarys-economic-forecast-inflation-growth-and-exchange-rates/
[2] Statista. (2022). Market size of the automotive industry in Hungary. https://www.statista.com/topics/1195/automotive-industry/market-size/