Surprise Growth Data Shifts Economy Into Higher Gear
Exceeding all expectations, the Hungarian economy expanded by 4.8% in the third quarter of the year compared to the same period of last year, the Central Statistical Office (KSH) has reported. The data might result in upward revisions of growth projections for the full year; however, forecasts for next year remain more modest.
The gross domestic product of Hungary was up by 4.8% according to raw data and by 5% according to seasonally and calendar adjusted and reconciled data in Q3 compared to the corresponding period of the past year. The raw figure was only slightly down from the 4.9% rise registered in the previous quarter.
Most industries contributed to the growth, market-based services to the greatest extent, KSH said in its latest release. Compared to the previous quarter, the volume of gross domestic product grew by 1.2% – according to seasonally and calendar adjusted and reconciled data – in Q3. In Q1-Q3 period, economic performance – based on unadjusted data – was 4.7% higher than a year earlier.
It was only a week ago that the European Commission raised its projection for Hungary’s GDP growth in its biannual forecast to 4.3%, up from its 4% forecast in the spring. The EC also revised its projection for 2019, to 3.4% from the earlier 3.2%.
With the fresh data coming to light, analysts are now revising their projections for both 2018 and 2019. By now, domestic and international organizations are almost unanimous in predicting growth of more than 4% in 2018, in line with the Hungarian government’s own expectations.
The real surprise behind the freshly published figure is that economists have kept saying that the Hungarian economy would eventually slow down, as the engines of growth are likely to weaken. However, this seems to have been put off for the moment; some even say that the average annual growth rate could be more than 4.5%, which would be a 14-year high.
Eastern European growth is defying euro zone weakness, claims Bloomberg in an article that sums up the latest growth data in the EU. Bloomberg also raises a question: What slowdown? According to Bloomberg, the results in Romania, Slovakia, Hungary and Poland beat economist forecasts for a slowdown indicated by weaker monthly data such as industrial production and retail sales.
Some analysts, however, are still cautious. Tatha Ghose, an economist at Commerzbank noted “very strong numbers” across central Europe, which don’t appear consistent with the PMIs (except in the case of Hungary) and weak data from Germany and the euro area.
“But I would say this was the last strong quarter for the region. Most leading indicators are softening globally,” he added. Bloomberg analysts’ consensus was 4.4% growth rate for the third quarter of 2018 in Hungary.
Reacting to the data, Minister of Finance Mihály Varga also noted that the adjusted Q3 growth rate was two-and-a-half times the European Union average and the second highest among all member states. He said that construction and the service sectors had contributed to the increase most, but rising consumer consumption, boosted by higher wages, together with a double-digit increase in investments, is also supporting economic growth. As for already published Q3 GDP data, Hungary came in at third place, behind Poland and Latvia.
Takarékbank raised its growth projections to 4.8% for the full year from its previous 4.6%. In a note, Takarékbank analyst Gergely Suppan said that the expansion could remain near 5% in the fourth quarter of year. Takarékbank also revised next year’s projection up slightly to 4.2%, from 4.1%.
Orsolya Nyeste, an analyst with Erste Bank, said the bank had identified upside risks regarding its 4.3% annual growth rate forecast. She also said that next year’s slowdown might not be as strong as previously expected, mainly due to persisting domestic demand. However, she warned there were downside risks due to the weakening of the global economy. Stronger than expected domestic demand in Hungary implies “monetary policy should change its current extremely loose stance in the near future in order to avoid overheating of the economy,” Nyeste added.
ING Bank macroeconomic analyst Péter Virovácz noted that, despite the surprisingly strong third-quarter growth, the Hungarian economy may yet lose some momentum in 2019, since the expected deterioration in external demand cannot be ignored. For this year, however, he did not rule out the highest rate of growth seen in Hungary for some 15 years, albeit provisional on continuing favorable performance in the final quarter.
Numbers to Watch in the Coming Weeks
The Central Statistical Office will publish statistics on how much money Hungarians earned between January and September on November 22. The next day will see retail trade statistics for September, and we will also find out how investments stimulated growth in the third quarter. Also, credit rating institution Moody’s will publish its second review for Hungary this year on November 23.
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