The Hungarian government will make a decision about any modifications to the 2023 budget following Q3 economic data, according to Prime Minister Viktor Orban's chief of staff.

The country's economy contracted by an annual 2.4% in Q2 based on preliminary unadjusted data, as all-time high inflation and elevated borrowing costs make an impact.

"The biggest difficulty will be meeting the deficit target," Gergely Gulyas commented. "Based on the first two quarters, the chance of achieving 1.5% (economic) growth is very low. Therefore, a correction is justified," he added.

In addition, declining consumption has led to a reduction in VAT revenues, making it more complicated to lower the budget deficit to 3.9% of GDP for this year as planned, Reuters news agency reports.

The sputtering economy is joined by the highest inflation in the European Union, which reached a peak of over 25% year-on-year in Q1 before decelerating to 17.6% in July.

"Even though real wage growth will most probably return by the end of the summer, or September at the latest, I would caution against expecting a fast rebound in consumption," said ING analyst Peter Virovacz.

Furthermore, the government forecast 1.5% GDP growth for this year before the disappointing data for the April – June period was released, the Reuters report goes on to add.

During a statement after the data was published, Hungary's economy minister and the finance ministry forecast a rebound for Q3 and Q4 as inflation is predicted to slow down further. However, an updated full-year forecast was not released.