Hungary: Growth decelerates in Q2 from Q1's multi-year high
September 15, 2017
The economy continues to grow at a solid pace. According to revised data released by the Central Statistics Office (KSH) on 15 September, the economy expanded 3.2% annually in Q2, matching the preliminary estimate released a month earlier. The deceleration from Q1’s three-year high of 4.2% should not, however, be interpreted as weakening growth, since economic fundamentals remain in good shape.
The quarterly print was driven by a strong performance in the domestic economy. Private consumption in the second quarter accelerated from its already strong 2.6% year-on-year expansion in Q1 to 3.3% growth in Q2. Private consumption is benefitting from steadily declining unemployment, public sector wage growth and accommodative credit conditions. Growth was observed in almost all subcomponents of private consumption, with furniture and household equipment, food, restaurants and hotels recording the largest increases. Growth in fixed investment exceeded 20% for another quarter (Q2: +21.2% yoy; Q1: +28.4% yoy) thanks to the resumption of EU investment fund inflows into the economy, easy access to credit and high business confidence. Investment in the vast majority of industries expanded significantly, particularly in construction and in machinery. Overall, yearly growth in total consumption accelerated from 1.4% in Q1 to 2.6% in Q2.
The external sector had a more muted performance in the second quarter due to a sharp increase in imports and softer growth in exports. Overseas demand for Hungarian goods decelerated from the strong 9.4% year-on-year increase in the first quarter to 3.5%. The slowdown largely reflects a contraction of services. Imports expanded 5.1%, coming in below the 10.0% expansion observed in Q1. Growth in imports partly reflects strong private consumption in the economy. As growth in imports exceeded the expansion in exports, the contribution of the external sector to growth deteriorated from minus 0.9 percentage points in Q1 to minus 1.6 percentage points in Q2.