Hungarian GDP to grow 1.9% in Q2

Hungary's GDP growth rate will unlikely exceed 2.0%-2.5% in the next few years, Takarékbank analyst Gergely Suppan told the daily.

Hungary's GDP growth slowed to 1.3% last year from 3.9% in 2006 and rose 1.7% in Q1 2008 after a sluggish 0.8% in Q4 2007.

The low domestic-growth outlook is explained by the fact that export dynamics seem to have run out of steam due to the slowdown in main markets. As much as 60% of Hungary's exports go to EU-15 countries, whose economies are close to recession, while a further 20% the country's exports are directed toward new EU member states, whose economies, while not yet in recession, have undergone a significant slowdown. Hungary's preliminary euro-term export growth rate of 7.6% lagged behind import growth of 8.4% for the first time in fifteen months in July.

Falling export demand is reflected in Hungary's industrial output figure, whose growth rate slowed from 6.6% in Q1 to 3.6% in Q2. Industrial output fell 0.3% yr/yr in June and decreased 1.6% from May according to seasonally and working-day adjusted figures. H1 industrial output was up 5.6% from the same period last year, when it grew 8.3% compared to the first half 2006.

Furthermore, domestic consumption is also forecast to fall below the level recorded in Q2 of last year, while the rate may also decrease in the third quarter before beginning to increase at around the end of the year, analysts told Napi Gazdaság.

The elimination of certain elements of the budget consolidation package, such as co-payment for doctors visit and hospital treatment, were expected to boost the performance of the service sector, analysts note, adding that growth from the base effect does not mean real expansion.

Analysts note that extremely good 2008 harvest forecasts earlier provided a significant boost to expected GDP growth this year, though the actual volume of harvested agricultural products turned out less than expected. (MTI – Econews)