Hungary: Second reading confirms softer contraction in Q3
December 1, 2020
A second GDP release confirmed that the pace of economic contraction moderated considerably in the third quarter, with GDP falling 4.6% year-on-year. This follows the 13.6% collapse recorded in the previous quarter, which had marked the worst reading on record.
Looking at the details of the release, both domestic and external demand benefited from the easing of Covid-19 containment measures. Household consumption dropped 2.7% in annual terms, following Q2’s sharper 8.3% decrease, amid recovering consumer sentiment and a falling unemployment rate. However, the contraction in fixed investment sharpened to 13.7% in the third quarter (Q2: -10.9% yoy), reflecting the considerable fall in investment in construction and in machinery and equipment. Meanwhile, public spending decreased 4.8% (Q2: +3.5% yoy).
On the external front, exports of goods and services shrank 5.2% in Q3 (Q2: -24.2% yoy), as easing lockdowns abroad boosted foreign demand. Similarly, imports of goods and services dropped a milder 5.2% in Q3, following Q2’s 16.4% plunge.
On a seasonally-adjusted quarter-on-quarter basis, GDP rebounded an unprecedented 11.4% in Q3, strongly contrasting Q2's 14.6% dive, which had marked the worst contraction on record.
Looking ahead, Peter Virovacz, senior economist at ING, stated:
“Moving into 2021, the main question remains how long it will take to get the vaccine approved and rolled out. As our base case, we expect the final reopening process to start in 2Q21, getting back to normal through that quarter.”
The economy is set to rebound markedly in 2021 following this 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.