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Investments Jump From low Base

Signs indicating the economy could perform a 4% expansion this year are gathering. The latest investment figures were exceptionally good, however, last year’s low base and the return of EU funds also helped.

Source: KSH

The volume of investments in Hungary increased 34.1% in the first-quarter from the same period of last year, amounting to a record of HUF 1.033 trillion, according to the latest data released by the Central Statistical Office (KSH). The good news came after a 24.1% fall in the last three months of 2016. Low base effects also had a notable role in the increase: the volume of investments fell back by nearly 15% in the first quarter of last year compared to the same period a year earlier, chiefly due to the completion of developments financed from EU sources. That was the second biggest drop in investments since 2000, while this year’s first-quarter data is unprecedented, the KSH said.

Apart from the very low base of the same period of last year, the kick-off of projects launched under the 2014-2020 EU funding cycle also gathered momentum, causing the surprisingly high rise in investments volume.

Growth was strong in nearly all areas of the national economy, showing a dynamic expansion in 17 out of the 19 economic sectors. Investment performance grew by 40% in the case of enterprises employing at least 50 persons (realizing six-tenths of investments) and by 31% in the public sector.

Detailed data shows that EU funds have provided a kick-start to practically all areas of national economy. Of the areas with a relatively large weight, the highest increase (56%) was recorded in the investment performance of real estate activities, with residential constructions and commercial real estate developments both increasing.

The second best-performing area was transportation and storage, where EU funds also played a significant role, increasing investments by 48% from the first quarter of 2016.

Also in the top three sectors was manufacturing, representing more than one-third of investments in the national economy. Expansion in this area had already started in the second-quarter of 2016.

The investment performance of wholesale and retail trade, and the repair of motor vehicles and motorcycles – after growth across three quarters – increased again, mainly due to retail unit upgrades, reconstructions and renovations. The investments of agriculture, forestry and fishing also performed well, mainly as the result of acquisitions of agricultural machinery.

Investments in mining and quarrying, which represent a relatively small weight in the national economy, were four times higher than in the same period of last year. The developments of construction – partly as an effect of the growth of production – were up by 16%. The investment performance of information and communication expanded by 14%, which was influenced by acquisitions of telecommunications equipment and extensions of cable networks, too.

EU funds showed their effects on areas which are mostly publicly financed, such as public administration, defense, compulsory social security and education.

The only area showing a setback was one where the state is also supposed to be the main investor, namely human health services, where investments decreased by 7.8%.

“Even taking the low base into account, investment growth was the highest since the fall of communism,” Minister for National Economy Mihály Varga commented on the data. Investments in manufacturing, such as developments at Apollo Tyres, Mercedes and Samsung, have seen very serious growth, he said. “If investment growth is sustained, even if not at such a high pace, the investment rate will also grow, which in turn boosts job creation and helps secure the targeted economic growth rate of 4% in 2017 and 2018,” he added.

In light of the more than 4% GDP growth registered in the first quarter of 2017, the jump in investments is not surprising, however, 34.1% is way above expectations, economic new website wrote. Investments are on an increasing path, driven not only by funding from the European Union, but also by the suddenly livening global economy, the site says, adding that EU funds will keep motivating investments in the upcoming two years, and if the global economy continues to be supportive, we will see investments further increasing in the longer run.

Investments data exceeded all expectations, and the 34.1% increase is a record, noted Takarékbank analyst Gergely Suppan. The exceptionally good figures were caused by base effects paired with an accelerating investment rate, as investment volume grew a seasonally adjusted 7.4% from the last quarter of 2016. He also mentioned the role of efficient utilization of EU-funds. Suppan expects that investment volume will grow nearly 20% this year, and the growth rate could still be around 10% in 2018, following a 20% setback in 2016.

K&H Bank analyst Dávid Németh said that the more than 30% growth is a good result, even in the light of the very low base. Investments are catching up after a setback last year, he said.

Numbers to Watch in the Coming Weeks

The KSH will publish the first estimates of April retail trade on June 6, followed by the second estimate of Q1 GDP data. Also on June 7, KSH will release the first estimate of industrial performance referring to April, while more detailed data will follow on June 14. The consumer price index for May will be revealed on June 8.