A Record-breaking Fall, but not in a Good Way


The inflation rate is above 20% for the first time in 25 years, and there was negative GDP growth on a monthly basis in the third quarter for the first time since thespring of 2020.

Based on raw data, the performance of the Hungarian economy grew by 4% in the third quarter compared to the same period of the previous year, while the seasonally and calendar-adjusted figure was 4.1%.

The latest statistics from the Central Statistical Office (KSH) also reveal that, compared to the previous quarter and based on seasonally and calendar-adjusted data, the performance of the economy contracted by 0.4%. In other words, output went into the red again on a quarterly basis for the first time since spring 2020.

Nearly all sectors contributed to the growth, but the industry and services sector played a big part in the expansion, while the agricultural sector restrained growth.

In the first three quarters of 2022, the performance of the economy exceeded the same period of the previous year by 6.1%, according to both raw and seasonally and calendar-adjusted and balanced data.

Decline Likely to Continue

According to Gábor Regős of Makronóm Institute, the third quarter data was less favorable than expected. He pointed out that if the performance of the economy continues to decline in the next quarter, the Hungarian economy will have met the definition of a technical recession.

The Hungarian growth data is less favorable than the EU average on a quarterly basis but more favorable on an annual basis, as the European Union achieved an expansion of 0.2% on a quarterly basis and 2.4% on an annual basis, the analyst said.

“According to our expectations, the performance of the economy will continue to decline in the fourth quarter, and the recovery can only start next year,” Regős said. However, there are several conditions for this: the curbing of inflation, a reduction inenergy prices, the strengthening of the forint exchange rate, the receiving of EU funds, and the maintenance of purchasing power.

“Based on our estimate, economic growth in 2022 could be around 4.8%,” Regős warned.

Technical Recession Ahead?

A technical recession seems inevitable, as a further contraction is expected inthe next two quarters due to falling real wages as a result of soaring inflation, an increase in household energy prices above average consumption, performance reductions due to the multiplying energy costs of businesses, municipalities and state institutions, as well as sharply rising interest rates, according to Magyar Bankholding’s senior analyst GergelySuppan.

He stated that due to the much weaker-than-expected performance, Magyar Bankholding would reduce its growth expectations for this year from 5.3% to less than 5%; however, it will leave its growth expectation of 0.4% unchanged for next year.

Following shocking September data, October’s inflation data was also bad news. For the first time in 25 years, Hungarian inflation rose above 20% in September and further strengthened to 21.1% in October. Core inflation rose from 20.7% to 22.3%.

In one year, food prices rose by 40%, including eggs by 87.9%, bread by 81.4%, and dairy products by more than 75% from the October 2021 prices. In an effort to curb inflation, the government announced price caps on further food products, namely potatoes and fresh eggs.

Inflation accelerated above expectations, Suppan commented on the data. The rising price pressure is reflected in the fact that core inflation jumped sharply to 22.3%, he said. In light of fresh data, Magyar Bankholding raised its previous inflation forecast both for this year and next. For 2022, he says inflation may rise to close to 23% by the end of the year, but from the beginning of next year, due to base effects, he expects inflation to decrease.

Gloomy Outlook in the Region

The ever-deteriorating geopolitical and financial conditions have set back the growth momentum of Central and Eastern Europe, according to a recent analysis by S&P Global. According to the international credit rating agency, a substantial slowdown in economic growth is already visible in addition to persistently high inflation, worsening people’s purchasing power.

According to S&P, the average GDP growth of the six countries in the region (Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia) will fall from this year’s 4% to 1.4% in 2023 and then accelerate to 3.1% in 2024.

For Hungary specifically, the rating agency’s base scenario is that the economy will slow from this year’s 4.9% growth to 1.8 % next year, and growth will pick up again to 2.8% in 2024. On the other hand, the more pessimistic scenario outlines an economic decline of -2.6% in 2023 in parallel with a similar trend in the region.

As for its inflation outlook, S&P economists point out that price increases in the region may be broader and more prolonged than previously expected. In Hungary’s case, they add that the weakening of the forint exacerbates this. Since the beginning of the year, the Hungarian currency is 20% weaker against the dollar and almost 10% down against the euro.

Numbers to Watch in the Coming Weeks

The Central Statistical Office will reveal the October state of the labor market on November 25. Third-quarter investment data will be published on November 28, and the second estimate of third-quarter GDP data will beposted on December 1.

This article was first published in the Budapest Business Journal print issue of November 18, 2022.

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