Hungary: Second estimate confirms the economy’s strength in Q1
According to a second estimate released by the Central Statistics Office (KSH) on 5 June, the Hungarian economy continued to grow unabated in Q1. GDP expanded 4.4% annually in the quarter, matching the preliminary estimate released a month earlier. The print also matched Q4’s result, which had marked the fastest expansion since Q2 2014. In quarter-on-quarter seasonally- and calendar- adjusted terms, the economy grew 1.2% in Q1, broadly unchanged from Q4’s 1.3% expansion.
Domestic demand was again the main driver of growth in the first quarter. Private consumption expanded a remarkable 5.1% in Q1, nearly unchanged from Q4’s 5.2% increase, which had marked the fastest print in three and a half years. Consumer spending was buoyed by robust wage gains, low inflation and extremely tight labor market conditions. Growth in fixed investment skyrocketed, following an already strong reading in the previous quarter (Q1: +17.1% year-on-year; Q4: +13.1% yoy). The double-digit jump in fixed investment was buoyed by rising inflows of EU investment funds and came on the back of a sharp increase in construction and machinery and equipment investment. Accommodative monetary policy and upbeat business sentiment also continued to fuel fixed investment. Public consumption, meanwhile, grew 4.6% in Q1 (Q4: +8.8% yoy), on higher social transfers.
Looking at the external sector, exports grew a meager 3.5% in the first quarter, a notable slowdown from the previous quarter’s 8.3% rise. The deceleration was mainly caused by weakening demand from the European Union. Import growth also decelerated, to 3.8%, in Q1 (Q4: +9.7% yoy), despite solid domestic demand. Consequently, the external sector made a null contribution to overall growth in the first quarter.
The economy should expand robustly this year, underpinned by strong domestic demand and healthy foreign orders. Consumer spending is expected to grow significantly as wages continue to rise on intensified labor shortages, while fixed investment will be fueled by rising inflows of EU funds and favorable financing conditions. The government’s fiscal stance is also expected to remain supportive of growth, although it will remain prudent overall.