MNB report anticipates reserved growth

Analysis

The second edition of the National Bank of Hungaryʼs (MNB) annual Growth Report, which addresses the expected development trajectory of the Hungarian economy and its key determinants over an extended period, shows several factors contributing to a reserved growth dynamic.

The MNB said persistent deceleration can be observed in almost all elements of production. In Hungary and the Central and Eastern European region, the process was already underway prior to the crisis, worsened as a result of the recession and increasing slowly in the subsequent years.

The MNB found that Hungarian growth has lagged behind other Visegrád countries since 2005. Hungarian gross domestic product was relatively high before the crisis, but economic growth was slower in the 2000s compared to the region, and only by 2014 did growth recover to the pre-crisis level of 2008, while it still lagged behind regional leaders by more than 20%.

The largest difference compared to the Visegrád countries of Slovakia, Poland and Czech Republic is that in the construction industry, GDP growth has been 75 percentage points higher on average since 2004.

A smaller, but still substantial lag can be identified in manufacturing, as well as in retail and wholesale trade and financial services, which make a major contribution to overall GDP growth.

The deceleration of manufacturing is attributable to almost all industries, with the performance of the crude oil sector and electronic industry being especially low. Slow growth in market services is attributable both to the wholesale and retail sector due to modest demand.

As a result of the crisis, Hungarian employment fell by roughly 5% compared to 2004. In the last three years it posted continuous growth on an annual basis, but all in all the growth rate was still lower than in the Visegrád countries.

The increase in labour productivity is the slowest in Hungary among the Visegrád countries; pre-crisis levels were only reached in 2011-2012. Productivity per capita shows the largest lag compared to the regional growth in financial services, construction and manufacturing, even though Hungarian manufacturing increased between 2010 and 2014.

One cause of the slowdown in productivity and growth may be that the growth rate of investments also declined and - in contrast to recovery from previous recessions - it remained low, said the MNB.

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