The volume of Hungary’s gross domestic product in the third quarter of 2024, compared to the same period of last year, was 0.8% lower according to raw data and 0.7% when seasonally and calendar adjusted and reconciled, according to fresh data published by the Central Statistical Office (KSH). Compared to the previous quarter, the economic performance also decreased by 0.7% according to seasonally and calendar-adjusted and reconciled data.
In the first three quarters, the performance of the economy was 0.6% higher according to raw data and 0.7% higher according to seasonally and calendar-adjusted and reconciled data than in the same period of the previous year.
The total performance of agriculture, industry and construction, making up about one-third of the economy, contributed to the decrease in the volume of GDP compared to the same period of the previous year by approximately two percentage points. Both market and non-market service performances slowed the downturn.
The last time Hungary’s economy was in a technical recession was the period from the second half of 2022, during the energy crisis. Of the nine quarters that have passed since then, GDP increased in only three, with a decrease in the remaining six.
Minister of National Economy Márton Nagy had already referred to possible weak growth data when he indicated at a Portfolio conference at the Budapest Economic Forum that the annual GDP growth in the third quarter would be very close to zero.
In his reaction to the weak GDP data, the minister admitted that the Hungarian economy is going through a difficult period but insisted that ever more positive signs indicate that it has reached a turning point.
As for this year, the government still expects a 1.5% annual growth rate: it is worth noting that it has been expecting the economic turnaround for more than a year. Nagy now stated that thanks to the cabinet’s 21-point action plan introduced in the past weeks, the Hungarian economy could expand at a dynamic pace again next year.
The potential for a big jump in economic performance in the third quarter of 2025 is being trailed. The minister added that if the German economy finally switches to a higher gear, the recovery of the Hungarian economy could be even faster, and growth could jump to an even higher level.
The analysts, however, are less optimistic. The third quarter GDP data was a negative surprise, Dániel Molnár, senior macroeconomics analyst at Makronóm Intézet commented. According to him, based on the third-quarter GDP data, close to 1% economic growth is more realistic this year, but even that requires an uplift inperformance in the fourth quarter.
“The prolonged upswing also creates uncertainty regarding next year’s economic prospects, the extent of which will continue to be influenced by the development of external demand. If there is no substantial rebound in our foreign markets, it is expected that the economy will only be able to achieve a growth rate of over 3% with great difficulty due to its internal engines,” he wrote in a note.
According to ING analyst Péter Virovácz, the economy is performing far below the expectations set for it at the beginning of the year: Hungary has slowly moved from 3%-plus forecasts to the point that if 1% growth is achieved in 2024 that would be viewed as good.
“In the third quarter, the performance of the Hungarian economy fell short of all expectations. It could be guessed that the data would be worse than what we expected after the also unfavorable figure of a quarter ago, but not by that much,” declared Gábor Regős, the head economist of Gránit Alapkezelő.
He commented that the Hungarian economy has once again entered a technical recession. According to him, the 1.5% growth expected so far this year has become unattainable with the latest data; to achieve this, 4.1% quarter-on-quarter growth would be necessary in Q4 of this year, he claimed.
“It seems more likely that the Hungarian economy will expand at a pace of only around 0.5% this year, below all previous expectations and perhaps even the average of the European Union,” Regős explained.
It was known from the preliminary data that agriculture, industry and the construction industry also performed poorly in the quarter, but according to the signs, everyone expected a smaller decline in these sectors. Although services improved the figure, it was insufficient to avoid slipping into a technical recession.
“Today’s data is not only bad news in itself: it makes it difficult to meet this year’s deficit target, which, however, should not be missed. In addition, it reduces the probability that next year’s growth will reach 3% and may further weaken the forint. Consequently, monetary policy will have to be stricter than previously expected. The task is therefore given: we should return from this bad situation to a growth path that we [last] saw in the second half of the 2010s,” Regős said. It won’t be easy, he added.
This article was first published in the Budapest Business Journal print issue of November 4, 2024.
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