Hungary: Second reading confirms economy shrank at softer pace in Q4 2020
A second GDP release confirmed that the pace of economic contraction moderated considerably in the fourth quarter of 2020, with GDP falling 3.6% year-on-year (previously reported: -3.7% yoy), following the 4.6% drop recorded in the previous quarter. Meanwhile, GDP expanded 1.4% on a seasonally-adjusted quarter-on-quarter basis in Q4 (previously reported: +1.1% s.a. qoq) following Q3’s 11.0% rebound, which had marked the strongest expansion on record. Looking at the year as a whole, the economy shrank a heavy 5.0%, strongly contrasting 2019’s 4.6% expansion.
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 4.2% in annual terms following Q3’s softer 2.1% decrease, amid downbeat consumer sentiment and tighter Covid-19 containment measures. However, fixed investment rebounded and grew 1.2% in the fourth quarter (Q3: -13.7% yoy), reflecting increasing investment in construction and in machinery and equipment. Meanwhile, public spending soared 6.2% (Q3: -2.6% yoy) amid the government’s efforts to boost the economy.
On the external front, exports of goods and services expanded 1.7% in Q4 (Q3: -4.8% yoy), as easing lockdowns abroad supported foreign demand. Similarly, imports of goods and services increased 0.9% in Q4, following Q3’s 4.5% plunge.
Commenting on the economic outlook, Peter Virovacz, senior Hungary economist at ING, stated:
“Today’s upwardly revised fourth-quarter data also means that the carry-over effect in 2021 may be slightly stronger than previously calculated. If Hungarian real GDP stagnates during this year, only due to the strong 4Q20 performance, the economy will grow 2.2% on average. On top of that, we see significant growth potential in the economy this year. So, the growth impulse during the year will be positive and probably reach a record high. Some of the fourth-quarter data, mainly the construction/investment combo also suggests more dynamic underlying growth this year.”
Looking ahead, the economy is set to rebound markedly in 2021 following last year’s pandemic-induced downturn. Domestic and foreign demand should strengthen amid loose fiscal and monetary policy stances, incoming EU funding and the gradual reopening of the global economy. Uncertainty regarding the availability of vaccines poses a downside risk, however.