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Good Industry Figures Project Strong Q1 GDP Data

Industrial output was up nearly 7% in January from a year before. The figures give reason for optimism and analysts also expect good GDP data for the first quarter.

Hungary’s economy expanded by 4.2% last year - the seasonally and calendar-adjusted data hasn’t been at such a high level since 2005 - the second reading of gross domestic product released by the Central Statistical Office (KSH) shows. 
Growth was mainly driven by domestic consumption and thus services and investments also contributed significantly. Figures for the fourth quarter show an even better picture: the volume of GDP was 4.4% higher in the given period than in the corresponding period of the previous year. 
According to seasonally and calendar adjusted and reconciled data, the performance of the economy was up by 4.9% compared to the corresponding quarter of the previous year and by 1.3% compared to the previous quarter. In 2017, the volume of GDP grew by 4% - unadjusted - compared to a year earlier. Compared with the fourth-quarter figure issued in the flash estimate, the second estimate was unchanged.
As for Q4, on the production side, the role of industry grew by 2.9%. The performance of construction rose by a robust 36%, while the value added of agriculture decreased by 11% compared to the high base a year earlier. The gross value added of services was up by 3.6% in total, making it the biggest contributor to the growth. 
On the expenditure side, the actual final consumption of households was up by 5.2% compared to the same period of the previous year. Household consumption expenditure, representing the largest proportion of the components of the actual final consumption, grew by 5.6%, within which volume increases were measured in all the groups. 

Above Average

The volume rose at rates exceeding the average in the case of furnishings and household equipment, food, restaurants and hotels as well as other products and services. The (domestic) consumption expenditure of households realized on the territory of Hungary increased by 5.4%. Actual final consumption rose by 5.7%.
For the entire year of 2017, the volume of gross domestic product grew by 4%. According to seasonally and calendar adjusted and reconciled data, the performance of the economy rose by 4.2% compared to the previous year. The value of GDP was put at HUF 38.183 trillion at current prices in 2017. 
From the production approach, gross value added increased by 32% in construction, by 3.9% in industry and by 3.3% in services and fell by 9% in agriculture. The KSH data shows that services contributed to the growth of GDP by 1.8 percentage points, construction by 1 pp and industry by 0.9 pp, while agriculture lowered growth by 0.3 pp.
Analysts expect the year-end economic momentum to last thoroughout this year, with consumption and investments being the biggest contributors again. Balanced growth can also be supported by the improvement of industrial output and a good harvest. 
Apart from consumption and investments, construction could also play a significant role in this year’s economic performance, K&H Bank head analyst Dávid Németh said. He expects an increase of 3.8% for the full year, noting that, with a good harvest period, the agriculture sector can cause positive surprises. 

Favorable Trends

Favorable labor market trends, coupled with the increased willingness of households to make purchases, boosted domestic consumption at the fastest rate in years in Q4, ING Bank chief analyst Péter Virovácz commented. He said ING Bank expects the Hungarian economy to expand by 3.9% in 2018, albeit in a more balanced structure.
The economic momentum could continue this year, agreed Erste Bank senior analyst Orsolya Nyeste. She thinks that the growth will be backed up by further strong EU funding absorption and increased investment activity. 
The statistical office also published industrial output figures for January. The report reveals that it was a strong start for the sector: industrial output was up 6.9% in the first month of the year from the same month of last year. The preliminary release also shows that, based on working-day adjusted data, production grew by 6.7%. Output rose after a 0.5% unadjusted decrease last December.
Analysts see the fresh figures as a promising sign for the first quarter GDP growth. Virovácz of ING Bank said that the working-day adjusted data was above market expectations, adding that the automotive and electronics segments are likely to have a strong year ahead. If so, that might be the basis for a growth rate of 8% for the sector this year, he said. 
Takarékbank analyst Gergely Suppan expects industrial output to accelerate to 7.5% in 2018, from 4.8% in 2017. However, he also warned that the labor shortage could hinder stronger growth in production. 
But prospects are good, and this year many segments could contribute to boosting the performance of the sector. For the full year, he predicts a growth rate of above 5%.

Numbers to watch in the coming weeks

A day after this paper goes to print, KSH publishes consumer prices for February. KSH will publish a second estimate of industrial output figures for January 2018 on March 14. On the very same day, the office will also release the January performance of the construction sector.