Hungary: GDP growth records best result since Q3 2022 in Q2
GDP reading: According to a preliminary estimate, GDP growth gained momentum to 1.5% year on year in the second quarter from 1.1% in Q1, marking the fastest expansion since Q3 2022. On a seasonally adjusted quarter-on-quarter basis, economic activity declined 0.2% in Q2, contrasting the previous quarter’s 0.7% increase and marking the sharpest drop since Q1 2023.
Drivers: Preliminary data suggests that Q2’s improvement largely stemmed from the construction and real estate sectors, as well as the balance of product taxes and subsidies. A low base effect also boosted the reading. On the flipside, Q2 marked a decline in the value added of the key industrial sector, and the performance of the broader services sector likely remained sluggish overall.
GDP outlook: Looking ahead, GDP growth should accelerate from Q2 in H2 and rebound from 2023’s downturn over this year as a whole, buoyed by recoveries in public and private spending. That said, fixed investment is set to decline for the second consecutive year, as interest rates remain elevated, and exports of goods and services will rise only marginally and by less than last year due to persistent weakness in EU demand. A quicker-than-expected recovery in EU activity is an upside risk, while weaker-than-anticipated domestic demand is a downside risk.
Panelist insight: ING analyst Peter Virovacz commented on the outlook:
“There may be some hope of a pick-up in domestic demand, but for the time being there does not seem to be much investment activity planned by companies. Such an uptick in gross fixed capital formation is neither justified by the domestic and external outlook, nor by capacity utilisation. In addition, the unpredictability of economic policy encourages decision-makers to save rather than invest. Given the need for fiscal consolidation, public sector investment is unlikely to provide a meaningful stimulus. And for consumption to pick up, households would need to become less cautious and more willing to spend. Economic uncertainty and the political narrative are also pushing households towards saving.”