Hungary: Economy continues to recover in Q1, beating expectations
According to a preliminary reading, economic activity continued to recover in the first quarter of 2021—despite a third wave of Covid-19 infections—taking market analysts by surprise. GDP expanded 1.9% on a seasonally-adjusted quarter-on-quarter basis in Q1, following Q4 2020’s 2.8% increase. On an annual basis, the pace of contraction eased to 2.3% in Q1 from 3.5% in Q4 2020.
While a detailed breakdown is yet to be released, the press release highlighted that activity in the industrial, financial and insurance sectors, as well as the information and communication sector, was the main driver of the quarter-on-quarter expansion.
More detailed GDP data will be released on 1 June.
Looking ahead, GDP looks set to rebound strongly this year, after 2020’s sizable drop. The gradual easing of restrictions, expansionary fiscal and monetary policies and inflows of EU funds will rekindle domestic demand, while the lifting of lockdowns abroad should boost exports. That said, uncertainty associated with the pandemic and the vaccination campaign poses a downside risk.
Commenting on the first quarter’s reading, Peter Virovacz, senior Hungary economist at ING, stated:
“In all, the fact that the Hungarian economy was able to show such dynamic growth on a quarterly basis in a quarter which showed a rather mixed picture in advance means that there is a much higher recovery potential in the economy than expected. […] In the light of today’s data, it may indeed be more than realistic to see the Hungarian economy expanding at or above 6% in this year as a whole. All this means a significant increase in aggregate demand, which will be accompanied by increasing internal inflationary pressures.”