GDP ticks up in the second quarter

Economy remains subdued: According to a second release, annual GDP growth edged up to 0.1% in the second quarter, above the flat growth seen in the first quarter but still weak, underscoring the prolonged malaise in Hungary’s economy. On a seasonally and calendar-adjusted quarter-on-quarter basis, GDP grew 0.4% in Q2, contrasting the previous quarter's 0.1% decrease and avoiding a technical recession by a whisker.

Domestic demand improves, while exports struggle: Domestic activity supported economic momentum in Q2. Private consumption increased 5.0% in the second quarter, which was above the first quarter's 4.1% expansion and was driven by rising social transfers. Public spending improved to a 9.8% expansion in Q2 (Q1: +7.3% yoy). Moreover, fixed investment declined at a softer pace of 7.0% in Q2, compared to the 10.1% decrease in the prior quarter. On the external front, net exports weighed on GDP growth for the fourth consecutive quarter in Q2, and its negative contribution was the sharpest since the pre-pandemic period. Exports of goods and services contracted at a sharper pace of 0.9% in Q2 (Q1: -0.4% yoy). Conversely, imports of goods and services growth sped up to 4.0% in Q2 (Q1: +0.1% yoy), marking the highest performance in over two years.

Panelist insight: ING’s Peter Virovacz and Zoltán Homolya commented: “Based on the details of the weak second quarter, the short-term outlook for the Hungarian economy remains bleak. Although the growth structure will become more balanced from next year onwards, the Hungarian economy will continue to be heavily dependent on consumption. […] Looking ahead, weak business and consumer confidence are still the main constraints on the Hungarian economy. […] Unpredictable external factors such as geopolitics and tariffs, as well as uncertain global and local growth prospects, are holding back investment activity. […] Although government interventions are directly boosting economic growth via government consumption and social transfers, they have yet to lead to a lasting turnaround in business and consumer confidence.”

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