Analysts at JP Morgan in London said the economy has now recorded six consecutive quarters of growth, although the level of output is still 5% below its pre-crisis peak.
Domestic demand remains weak and household consumption did not recover in a material way yet in the first quarter despite the personal income tax cuts at the start of the year. This can also be seen from the broad stagnation in real retail sales and weak lending to households in 1Q/2011, JP Morgan said.
Sectors of the economy that have been in decline for years such as construction remained a drag on growth although new investments in the manufacturing sector will provide some offset.
However, “we maintain our full-year GDP growth forecast of 2.8% … Despite some loss of momentum in the industrial sector going into the second quarter, the improvement in underlying growth, boosted by continued strong performance of the German economy, bodes well for Hungary”.
The low base from the sharp decline in agricultural output should also help to boost year-on-year growth particularly in the second half of the year. Further ahead, the expansion in the production capacity of the automotive sector will be a key growth driver, helping to lift year-on-year GDP growth rates above 3% in coming years, JP Morgan’s London-based analysts said.
Economist at Goldman Sachs said after the preliminary data release that together with upward revisions to 2010 data, Friday’s print “creates some upward risk to our 2011 growth forecast of 2.5%”.
The print should have no impact on monetary policy, however: while stagnating consumption is in line with the MNB’s forecast, accelerating inflation “very much limits” the possibility of policy easing. “We continue to see the M% staying on hold for the rest of this year”, Goldman Sachs said.
4cast, a major City-based financial consultancy, said that looking forward, oil prices and Japanese supply problems should weigh on output, but “a slow recovery” based mainly on export and to a small extent on recovering domestic demand should endure.
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