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Economy Shifts up, Industry Slows Slightly

In the first quarter of the year, the Hungarian economy performed even better than first estimated, although industrial production data for April was somewhat disappointing. Growth forecasts for the full year remain unchanged, however.

The volume of gross domestic product was 4.2% higher in the first quarter of 2017 than in the same period of the previous year, the second reading by the Central Statistical Office (KSH) shows, exceeding the first estimate by 0.1 of a percentage point. According to seasonally and calendar adjusted and reconciled data, the performance of the economy was up by 3.8% compared to the corresponding quarter of the previous year, and by 1.3% compared to the previous quarter.

The updated first quarter GDP data put Hungary in sixth place on the European Union’s growth list, an improvement from where the last quarter data of 2016 had placed the country. At a regional level, according to seasonally and calendar adjusted data, Hungary performed similarly to Poland, but Romania and Slovenia recorded higher growth. The average economic growth in the EU was 2.1%.
The primary contributors to the growth were market-based services and industry. As for the latter, the value added by it grew 6.8%, within which manufacturing produced the highest increase, 7.8%, from the same period of last year. Within industry the growth of the performance of non-industrial activities exceeded that of industrial production. The performance of construction rose by 25%, while agriculture decreased by 6.3%. The gross value added of services was up by 3% in total. Altogether, services contributed 1.7 pp, industry 1.6 pp and construction 0.4 pp to the Q1 growth.
On the expenditure side, the actual final consumption of households increased by 2.5% compared to the same period of the previous year. Household final consumption expenditure, representing the largest proportion of the components of the actual final consumption of households, grew by 3.5%. The actual final consumption of the government was up by 6.2%. As a result of the above trends, actual final consumption rose by 1.2%.

Upward Revision

Most analysts have kept their forecasts for the full year GDP growth at around 4%, some even corrected after the second estimates were released. In its latest “Economic Outlook” publication, the OECD revised its GDP forecast for Hungary to 3.8% for 2017, up from its fall forecast of 2.5%.
“Economic activity slowed temporarily in 2016, but has since rebounded, fueled by public investment as the disbursement of EU structural funds resumed,” the organization wrote of Hungary in its latest forecast, emphasizing that economic activity will continue to be driven by domestic demand, with improving employment and wage trends supporting it.
The Hungarian government’s view on Hungary’s economic outlook is similar, but it anticipates even better macro-economic indicators than the OECD, László Balogh, deputy state secretary for financial policy said in a statement. Among the Visegrad Four, Hungary’s economic growth rate may be the highest in 2017, he stressed.
While GDP data gives all the more reason for optimism, industrial output figures for April somewhat spoil the picture. In April 2017, the volume of industrial output declined by 3% year-on-year, the second estimates confirmed the preliminary figures. Based on working-day adjusted data, production grew by 2.5%. The significant difference between raw and adjusted data is mainly due to the fact that there were three fewer working days in April 2017 than a year earlier. In the first four months of 2017, production increased by 4.9%.
According to the seasonally and working-day adjusted index, industrial output was below the level of the previous month by 0.8%. Production, which represents 96% of the output, declined by 3.4% in manufacturing. Production grew by 23% in mining and quarrying (which have little weight) and by 1.8% in energy industry, including electricity, gas, steam and air-conditioning supply.

Expansion Expected

In spite of the disappointing data, analysts expect that industrial output will expand between 4% and 6% in 2017.
The low base effect and new capacities in the tire and food industries might result in a 6% industrial output acceleration by the end of the year, Takarékbank analyst Gergely Suppan said. He expects a higher growth rate in 2018, with the deployment of new capacities in the automotive industry.
April’s figures were significantly lower than expected, however, the outlook for this year is still positive, noted Péter Virovácz, head analyst of ING Bank, predicting an average of 4% growth rate for the full year.
Dávid Németh, of K&H Bank, questioned whether the nearly 8% year-on-year growth the industry reached in the first quarter of 2017 can be maintained. Given the latest data, the increase for the full year will be lower; Németh put it at around 5-6%. He expects an upturn in May.

Numbers to Watch in the Coming Weeks

The macro calendar for the next two weeks is not very crowded. KSH will release earnings statistics for the January-April period on June 21, to be followed by the second estimates of retail trade figures two days later. Employment and unemployment data will be published for the March-May period on June 28.