Hungary: Second reading confirms record-breaking contraction in Q2
A second GDP release published on 1 September confirmed that GDP collapsed 13.6% year-on-year in the second quarter as a result of Covid-19 and associated restrictions, contrasting the 2.2% expansion recorded in the previous quarter and marking the worst reading on record.
Looking at the details of the press release, domestic demand was severely hit by the strict containment measures enacted in late March and kept in place for the most part until May. Household consumption dived 8.6% in annual terms, contrasting Q1’s 4.3% increase and marking the steepest fall on record. In addition, fixed investment tumbled 13.5% in the second quarter (Q1: -2.6% yoy), reflecting the massive drop in business confidence. Meanwhile, public spending growth increased to 5.8% (Q1: +2.4% yoy), as the government provided fiscal stimulus, primarily in the form of tax relief, to mitigate the economic spillover from the lockdown.
On the external front, exports of goods and services shrank 24.0% in Q2 (Q1: -0.5% yoy), constrained by impaired foreign demand, which damaged Hungary’s export-orientated industrial sector. Similarly, imports of goods and services dropped 15.8% in Q2, contrasting Q1’s 1.3% rise.
On a seasonally-adjusted quarter-on-quarter basis, GDP plummeted 14.5% in Q2, notably steeper than Q1’s 0.4% drop. Q2’s reading also marked the worst contraction on record.
Commenting on the outlook ahead, Peter Virovacz, senior economist at ING, noted:
“If the virus can be contained in a manageable fashion from an economic point of view, third-quarter GDP growth could be the strongest ever, maybe even in the double-digit territory in QoQ terms. Of course, recovery will slow as the temporary economic policy measures are coming to an end […] and economic reality will catch up, notably in the labour market. All in all, we still can end up with “only” a 5.5% GDP drop in 2020 as a whole. If targeted lockdown measures slow the rebound (but still not a full second wave with a full lockdown), we see GDP falling by around 7.5% this year.”