Hungary: Economic growth accelerates to over three-year high in Q4
According to a second estimate released by the Central Statistics Office (KSH) on 6 March, the Hungarian economy picked up steam in Q4, as GDP expanded 4.4% annually in the quarter, matching the preliminary estimate released a month earlier. The quarterly print marked the fastest expansion since Q2 2014 and an acceleration from Q3’s already strong 3.9% increase. Full-year growth in 2017 came in at 4.0%, a marked acceleration from 2016’s 2.2% expansion and the strongest growth since 2014.
Domestic demand was the main driver of growth in the fourth quarter. Private consumption expanded a sharp 5.2% in Q4, an acceleration from Q3’s 4.8% increase and the fastest print in three and a half years. It has benefitted from salary hikes, low inflation and declining unemployment, which reached 3.8% in the fourth quarter. Growth in fixed investment moderated but remained robust (Q4: +13.1% year-on-year; Q3: +14.4% yoy). The double-digit increases in fixed investment was mostly driven by the resumption of EU investment funds last year, which brought full-year growth in fixed investment to 16.8% (2016: -10.6%). Accommodative monetary policy and high business confidence also provided a notable boost to fixed investment. Public consumption grew 8.8% in Q4 (Q3: +1.8% yoy), on higher spending on infrastructure and social transfers.
Looking at the external sector, exports grew 8.3% in the fourth quarter, a pick-up from the previous quarter’s 4.7% rise. The acceleration was propelled by increased demand for manufactured goods including motor vehicles and assembled automotive parts. Demand was particularly strong from the European Union. Imports also accelerated and reached 9.7% in Q4 (Q3: +9.1% yoy), reflecting solid domestic demand and capital inflows into the economy. As imports expanded at a faster pace than exports, the external sector made a negative contribution to growth in the fourth quarter.
The economy is set to grow at a solid, albeit slower, pace in the next two years. The domestic economy is expected to remain robust as unemployment stays low, monetary conditions remain accommodative and EU investment funds continue to flow into the economy. Similarly, the external sector should benefit from the Eurozone’s current growth dynamics and increased production capacity in the country’s manufacturing sector.