Hungary: Second estimate puts growth at over 12-year high in Q2
September 5, 2018
According to a second estimate released by the Central Statistics Office (KSH) on 5 September, the Hungarian economy continued to grow robustly in Q2. GDP expanded 4.8% on an annual basis, above the preliminary estimate of 4.6% released a month earlier. The second-quarter print also came above the 4.4% rise recorded in Q1 and marked the fastest expansion since Q4 2005.
Domestic demand was again the main driver of growth. Private consumption expanded 4.3% in Q2, below Q1’s 5.1% increase but still solid nonetheless. Consumer spending was buttressed by healthy wage growth and an extremely tight labor market. Growth in fixed investment soared again in Q2, albeit slightly down from the stellar reading of the previous quarter (Q2: +15.0% year-on-year; Q1: +17.1% yoy). The double-digit surge in capital spending was buoyed by stronger absorption of EU funds and upbeat business confidence throughout the quarter. Sharp increases in investment were recorded in construction and machinery and equipment. Public consumption, meanwhile, lost considerable pace in Q2, growing 1.9% in Q2 on lower social transfers (Q1: +4.6% yoy).
On the external front, exports of goods and services rose a robust 6.2% in the second quarter, a substantial acceleration from the previous quarter’s 3.5% gain. However, imports also gained traction in Q2, growing 7.5% year-on-year (Q1: +3.8% yoy). Consequently, the external sector subtracted 0.5 percentage points from overall growth in the second quarter, contrasting the null contribution in Q1.
Economic growth should remain strong this year on the back of robust domestic demand. Consumer spending should be buoyed by continued tightness in the job market and solid real wage growth, while fixed investment will benefit from further inflows of EU structural funds and still-low borrowing costs. Potential capital flight stemming from emerging-market risk aversion and the Fed’s tightening cycle pose key downside risks to the outlook.
Author: Javier Colato, Economist