Macro Newsletter
August 2025
Inflation Eases, Investment Contracts, National Bank
of Hungary Holds Rates
• The National Bank of Hungary kept its benchmark interest rate at 6.50% in June 2025, marking the tenth consecutive meeting with no policy change and in line with market expectations. Policymakers signaled a cautious stance, balancing persistent inflationary pressures against a weakening growth outlook
• Hungary’s annual inflation rate slowed to 4.3% in July, down from 4.6% in June and below the April peak, though still above consensus forecasts of 4 1% Price growth eased for food (5 9% vs 6.2%), services (5.3% vs 5.4%), and consumer durables (2.1% vs 2.6%), while costs for electricity, gas, and other fuels accelerated. Core inflation dropped to a 14-month low of 4 0%, extending the disinflation trend.
• Meanwhile, Hungary’s investment activity weakened in Q2 2025. According to HCSO data, investment volumes fell 8 0% year-on-year in raw terms, while seasonally adjusted figures showed a 1.1% quarterly decline. The contraction was driven by real estate activities, manufacturing, and education, partly offset by higher spending in transportation and storage
Industrial Output Weakens While Retail Trade Gains Momentum
• Industrial production contracted sharply in June 2024, falling 4.9% year-on-year. The decline was led by the transport equipment sector, which represents over a quarter of total manufacturing output. Production in this category dropped 11.5%, with motor vehicle manufacturing down 16.1% and parts and accessories output lower by 10.8% compared to a year earlier.
• By contrast, retail trade expanded in June 2025, with both raw and calendaradjusted volumes up 3.0% year-on-year. Food shop sales rose 3.7%, non-food retail gained 3.9%, and automotive fuel sales increased 2.5%. On a monthly basis, seasonally and calendar-adjusted sales volumes grew 0.5%, while in the first half of 2025 overall retail sales were 3.1% higher than in the same period of 2024.
• EUR/HUF trend: Trading near 397, the forint remains under pressure from high inflation, and geopolitical risks from the Ukraine conflict, which keeps energy costs and investor uncertainty elevated
• In financial markets, Hungary’s 10-year government bond yield stood at 7.1% on August 26, reflecting a stable base rate environment amid ongoing uncertainty.
EUR/HUF ex. rate (2020-2025)
Source: Trading economics
Energy market
Energy Markets Volatile Amid Geopolitical Tensions
• European natural gas futures traded around €31/MWh on August 26, as geopolitical risks remained elevated. The ongoing war in Ukraine showed no signs of easing, with Kyiv intensifying attacks on Russian energy infrastructure, including a strike on the Baltic port of Ust-Luga over the weekend At the same time, US President warned of further sanctions on Moscow, heightening market uncertainty.
• In oil markets, Brent crude futures slipped to $68 3 per barrel on August 26, after nearly a 2% rise in the previous session that lifted prices to their highest in almost three weeks. The pullback reflected volatile trading driven by both supply and demand factors. Concerns over supply disruptions resurfaced following Ukraine’s drone strikes on Russian power and energy facilities, while Trump’s warning of additional sanctions added to upward pressure. At the same time, traders weighed the impact of Washington’s planned 25% tariff on India’s purchases of Russian oil, a move that could reshape trade flows.
• On the demand side, expectations of looser US monetary policy provided some support. With the Federal Reserve signaling the possibility of a September rate cut, markets anticipate stronger economic growth prospects, which could lift global energy demand in the months ahead
Eurozone
ECB Pauses Rate Cuts as Eurozone Inflation Holds, German Industry Weakens
• The European Central Bank kept interest rates unchanged in July 2025, signaling a pause after eight consecutive cuts over the past year. The main refinancing rate remains at 2.15%, and the deposit facility rate at 2.0%, the lowest levels since November 2022. Policymakers adopted a cautious wait-andsee stance, weighing the impact of trade uncertainty and potential US tariffs on growth and inflation.
• Eurozone inflation held steady, with the headline annual rate at 2% in July, in line with the flash estimate and slightly above forecasts of 1.9%. This marks the second straight month inflation has aligned with the ECB’s target Meanwhile, core inflation stayed at 2.3%, its lowest since January 2022, pointing to a gradual easing of underlying price pressures.
• In contrast, Germany’s industrial sector showed mounting weakness. Industrial production fell 1.9% month-over-month in June, far sharper than the expected 0.5% drop and following a revised 0.1% decline in May. The contraction was led by steep declines in machinery and equipment (-5.3%), pharmaceuticals (-11 0%), and the food industry (-6.3%). On a quarterly basis, output was 2.3% lower in Q2 than Q1, while year-onyear production fell 3.6% in June, deepening from a 0.2% decline in May.
US Inflation Steady, Labour Market Weakens
• The US annual inflation rate held at 2.7% in July 2025, matching June’s level and coming in slightly below expectations of 2.8%. On a monthly basis, consumer prices increased 0.2%, easing from June’s 0 3% rise, which had been the strongest since January However, core inflation which strips out food and energy accelerated to 3.1%, the highest in five months and above the 3% forecast, pointing to persistent underlying price pressures.
• The labour market showed signs of cooling. The unemployment rate rose to 4.2% from 4.1%, in line with forecasts. The labour force participation rate slipped to 62.2%, its lowest since November 2022, while the employment-population ratio declined to 59.6%, the weakest since December 2021. Meanwhile, the broader U-6 unemployment rate increased to 7 9%, reflecting more discouraged workers and underemployment
• Financial markets responded with higher yields, as the 10-year US Treasury note climbed to 4.3% on August 26. Political developments added to volatility after President Donald Trump dismissed Federal Reserve Governor Lisa Cook over alleged mortgage fraud. The move raised fresh concerns about the Fed’s independence and the risk of political interference in monetary policy. Cook’s removal is seen by investors as potentially paving the way for earlier rate cuts, consistent with Trump’s repeated calls for lower borrowing costs. Futures markets now price in an 83% probability of a 25 basis point cut at the September Fed meeting.
US 10 year Bond evolution, %
Forecast- Hungary
Source: Colliers
