Macro Newsletter
Domestic News
• The central bank of Hungary maintained its key base rate at 6.5% during its February 2025 meeting, citing a weak EUR/HUF exchange rate, rising inflation, ruling out rate cuts in the near future.
• Hungary's annual inflation rate accelerated to 5.5% in January 2025, up from 4.6% in December 2024 and significantly exceeding market expectations of 4.8%. Food prices increased further (6% vs. 5.4% in December), while inflation also picked up in the services sector (8.5% vs. 6.8%). Core inflation, which excludes volatile items such as food and energy, rose to a one-year high of 5.8% in January, compared to 4.7% in the previous month, surpassing forecasts of 4.9%.
• The EUR/HUF exchange rate recently strengthened to 400 forints, primarily due to the central bank keeping interest rates steady and signaling no imminent rate cuts. The exchange rate was also supported by encouraging news regarding the resolution of the situation in Ukraine. However, significant uncertainty remains, particularly concerning the evolving trade policy of the United States.
Domestic News
• In December 2024, Hungary's industrial production fell by 5.3% compared to the same month a year earlier. For the entire year, total production declined by 4.0%, following a 5.5% decrease in 2023. Of the 13 manufacturing subsectors, nine recorded declines, with the manufacture of electrical equipment seeing the steepest drop of 13.6%. The transport equipment sector the country’s largest manufacturing subsector also contracted by 9.0% year over year.
• Retail trade showed modest growth in December 2024, with sales volumes rising 0.4% in raw data terms or 0.1% when calendar-adjusted, compared to December 2023. For the whole year, retail trade volume increased by 2.6%, mainly driven by higher food consumption.
• Investment volumes dropped significantly, down 13.8% year over year in the fourth quarter of 2024 according to raw data. For the full year of 2024, investment volumes also declined by 13.8%, as reported by the Hungarian Central Statistical Office (HCSO).
• The yield on Hungarian 10-year government bonds remained steady at around 6.7%, reflecting the stagnant base interest rate and related market expectations. As of February 27th, the yield stood at 6.65%.
EUR/HUF ex. rate (2020-2025)
Source: Trading economics
Energy market
• European natural gas futures rose toward €44 per megawatt-hour at the end of February 2025, as concerns mounted that a potential USEU trade dispute could drive up LNG costs, especially with the US being Europe’s primary supplier. Despite the rebound, gas prices remain over 25% below February’s peak of €59, influenced by mild weather, potential easing of EU storage mandates, and US-led peace talks in Ukraine. With EU storage levels below 40%, major European countries are considering relaxing storage requirements to mitigate supply concerns and stabilize prices ahead of next winter.
• Brent crude oil futures hovered below $73 per barrel at the end of February 2025, close to their lowest level since last December, pressured by the prospect of increased supply and a bearish demand outlook. Hopes for a Russia-Ukraine peace deal continued to weigh on prices, as expectations of eased Russian sanctions could boost global oil supply.
Brent oil price (USD/Bbl)
Eurozone
• The European Central Bank (ECB) cut its key interest rates by 25 basis points in January 2025, as anticipated, bringing the deposit facility rate to 2.75%, the main refinancing rate to 2.90%, and the marginal lending rate to 3.15%. The move aligns with the ECB’s updated inflation outlook, reflecting easing price pressures in line with projections. While domestic inflation remains elevated due to delayed wage and price adjustments, wage growth is slowing, and corporate profits are helping to absorb some inflationary effects
• The Euro Area’s consumer price inflation rate was confirmed at 2.5% in January 2025, the highest since July 2024, primarily driven by a sharp increase in energy costs (1.9% vs. 0.1% in December). Core inflation remained steady at 2.7% for the fifth straight month, marking its lowest level since early 2022. On a monthly basis, consumer prices decreased by 0.3% in January, following a 0.4% rise in December.
• Germany's GDP contracted by 0.2% in 2024, following a 0.3% decline in 2023, aligning with market expectations. The manufacturing sector saw a notable drop in output (3%), with significant declines in key industries such as machinery and automotive.
• In January 2025, the annual inflation rate in the US rose to 3%, up from 2.9% in December and exceeding market expectations of 2.9%, signaling stalled progress in controlling inflation. Core inflation also increased unexpectedly to 3 3%, defying forecasts of a slowdown to 3 1% On a monthly basis, inflation rose by 0 4%, more than anticipated
• The US unemployment rate fell by 0.1 percentage points to 4.0% in January, its lowest level since May and slightly below the predicted 4.1%.
• The yield on the US 10-year Treasury note held steady at around 4 28% Meanwhile, investors are weighing the impact of President Donald Trump’s escalating tariff threats. On 26th February, Trump announced plans for 25% "reciprocal" tariffs on European autos and other goods and confirmed that tariffs on Mexico and Canada would begin on April 2, instead of the earlier deadline of March 4. While markets have mostly absorbed his mixed signals, some traders warn that the risk of deeper tariffs may still be underestimated.
Source: Trading Economics
US 10 year Bond evolution, %
Forecast- Hungary
Source: Colliers
