Hungary: Hungarian economy expands robustly in Q1
June 21, 2017
The Hungarian economy started the year on a strong footing. According to revised data released by the Central Statistics Office (KSH) on 16 June, the economy expanded 4.2% annually in Q1. The reading vastly exceeded market analysts' expectations of a softer 3.4% rise and was a tad above the 4.1% expansion reported in the preliminary release. Q1’s print marks the fastest expansion in almost three years and was driven by a robust expansion in fixed investment and a healthy performance of the external sector. Sequential data also reflected the solid growth momentum observed in Q1 and expanded 1.3% on a quarter-on-quarter basis. The print was almost double the 0.7% expansion observed in the preceding quarter and marked the fastest print in two years.
Q1’s growth was supported by a sharp rebound in fixed investment, which more than offset slower growth in private and public consumption. Fixed investment swung from a steep 19.6% contraction to a sharp 28.4% expansion in Q1. Q1’s figure reflects a favorable base effect, EU investment funds flowing back into the country, accommodative monetary policy and a recovery in the housing market. The positive spillover of the large upswing was observed in higher industrial output and construction activity.
On the other hand, growth in private consumption slowed from a solid 3.9% expansion to 2.5% and public consumption plummeted 6.2% (Q4: -5.0% year-on-year). The slowdown in private consumption is somewhat surprising taking given that consumer confidence has been improving and the labor market is solid, but the slower growth reflects a decline in social transfers from the government. Overall, growth in domestic demand accelerated from a 1.1% expansion in Q4 to a multi-year high of 4.1%.
The external sector performed strongly in the surveyed period, mirroring the performance observed in the domestic economy. Growth in exports jumped to a 12.88% expansion while imports accelerated and came in at 14.7%. Export growth was propelled by increased demand for manufactured goods in key markets Growth in imports in part reflects still-strong private consumption.
The economic outlook for Hungary is promising. Economic growth is set to accelerate this year on the back of a recovery in fixed investment and strong private consumption. Improving trends in the labor market and growth in real wages on the back of higher wages for the public sector should provide further impetus to the economy. The contribution of the external sector to growth is expected to deteriorate despite solid exports growth as imports are set to surge on the back of growth in private consumption.