Hungary: Second reading confirms economy continued to recover in Q1
A second GDP release confirmed that the pace of economic contraction moderated considerably in the first quarter of 2021, with GDP falling 2.1% year-on-year (previously reported: -2.3% yoy), following the 3.5% drop recorded in the previous quarter. Meanwhile, GDP expanded a robust 2.0% on a seasonally-adjusted quarter-on-quarter basis in Q1 (previously reported: +1.9% s.a. qoq), following Q4’s 2.8% increase.
Looking at the details of the release, while the external sector benefited from an improved international trade environment, the performance of the domestic economy was more mixed. Household consumption dropped 3.7% in annual terms following Q4 2020’s slightly sharper 4.0% decrease, amid tighter Covid-19 containment measures. Moreover, fixed investment dipped 0.1% in the first quarter (Q4 2020: +1.3% yoy), likely reflecting supply disruptions. Meanwhile, public spending soared 10.4% (Q4 2020: +2.4% yoy) amid the government’s efforts to boost the economy.
On the external front, exports of goods and services expanded 3.3% in Q1 (Q4 2020: +1.1% yoy), amid a brighter international backdrop. Similarly, imports of goods and services increased 1.1% in Q1, following Q4’s 0.4% dip.
GDP looks set to rebound strongly this year, after 2020’s sizable drop. The gradual easing of restrictions, expansionary fiscal and monetary policies and inflows of EU funds will rekindle domestic demand, while the lifting of lockdowns abroad should boost exports. That said, uncertainty associated with the pandemic and the vaccination campaign poses a downside risk.