Hungary: Growth softens to one-year low in Q2 but remains strong nonetheless
A second GDP release published by Hungary’s Statistical Office on 30 August confirmed that growth, in annual terms, slid to 4.9% in Q2 from 5.3% in the first quarter. The reading marked the weakest expansion in a year but remains among the fastest growing economies in the European Union.
A detailed breakdown by components revealed softer domestic demand dynamics and a downturn in the external sector dragged on growth. Private consumption growth decelerated from 4.8% in Q1 to 4.3% in Q2 as a pick-up in inflation in the quarter ate into households’ purchasing power and consumer confidence remained downbeat, although improved from the previous period. Meanwhile, a marked drop in business confidence curbed fixed investment growth, which nevertheless came in at a robust 16.4% (Q1: +23.4% year-on-year). Moreover, government spending lost steam, expanding at a softer pace of 1.7% (Q1: +2.1% yoy).
On the external side, export growth fell markedly, from 7.7% in the first quarter to 2.7% in Q2, as key trading partners in the Eurozone slowed and global trade tensions remained elevated. Import growth also slid, albeit to a lesser extent, as domestic demand faltered (Q2: +4.3% yoy; Q1: +6.7% yoy). Taken together, net exports deducted 1.2 percentage points from growth in the second quarter, contrasting a contribution of 1.3 percentage points in the first quarter.
While the second-quarter expansion was relatively strong, fears of a protracted slowdown across Europe, the prospect of a disorderly Brexit and ongoing global trade tensions have put downward pressure on the forint. Rising external headwinds hurled the currency to a record low against the euro on 29 August, as investors’ appetite for risk weakened and came two days after the Central Bank opted to hold steady amid easing price pressures. Looking ahead, the economy is seen losing traction this year as capacity constraints restrain domestic demand.