Hungary: Hungarian economy loses momentum in Q3
December 8, 2016
The Hungarian lost some steam in the third quarter. Comprehensive data released by the Central Statistics Office (KSH) show that the economy decelerated from a 2.8% annual expansion in Q2 to 2.2% in Q3. The print, which matched the FocusEconomics Consensus Forecast, was revised up from the 2.0% increase reported in the preliminary estimate. In a seasonally-adjusted quarter-on-quarter basis, growth moderated from 1.1% to a modest 0.3% rise in the third quarter. The quarterly print reflects how the economy continues to reel from dwindling EU investment funds and a deterioration of the external sector.
Growth was hit by a sharp 8.8% contraction in fixed investment in Q3 due to the completion of projects financed with EU-investment funds. In turn, this resulted in a sharp decline in investments in the construction sector. Though the third quarter reading marks a softer contraction than Q2’s 19.7% decline, the improvement largely reflects positive developments in inventories and greater investment from the private sector. Growth in private consumption moderated in the third quarter to 3.8%. Despite the deceleration, private consumption remains solid and supported by high levels of consumer confidence, salary hikes, lower taxes and low unemployment. Government consumption, on the other hand, swung to a contraction in the third quarter and marked the lowest reading in over a year.
The external sector performed poorly in the third quarter and dented economic growth. A slowdown in exports growth, which fell to its lowest level in over three years, and a less pronounced deceleration in imports resulted in a widening trade deficit. The external sector’s contribution to growth swung from plus 1.8 percentage points in Q2 to minus 0.7 percentage points in Q3.
The Hungarian economy is expected to finish 2016 in a soft patch, though the slowdown appears to be temporary. In October, exports and industrial production declined and retail sales grew at the slowest pace since the start of this year. The medium-term outlook, however, is more promising. On 20 December, the government announced a range of measures aimed at pushing growth above 4.0% in 2017 and in 2018, when presidential elections will be held. Economist Nora Szentivanyi from JPM explains why Hungary revised up its GDP forecasts:
“On the back of the government’s new fiscal stimulus package and the NBH’s easing measures, GDP growth is now seen rising above 3% next year, to 3.6% (previously: 3%) and further to 3.7% in 2018. Interestingly, the NBH did not lower its 2016 growth forecast from 2.8% (JPM: 2%), which implies a very steep growth acceleration in 4Q16 or else large upward revisions to earlier quarters.”