Analysts Raise Eyebrows and Forecasts in Light of Startling GDP Data


The first-quarter GDP data took analysts by surprise: the latest release by the KSH shows that the Hungarian economy expanded in the first three months of the year compared to the previous quarter. On an annual basis, the pace of contraction eased in Q1 from the last quarter of 2020. Market watchers have already raised their forecast for this year.

Despite of the third wave of the coronavirus pandemic, which hit Hungary hard, the economy grew in the first quarter of the year on a quarter-on-quarter basis, and the annual contraction was the smallest since the start of the pandemic.

According to preliminary data released by the Central Statistical Office (KSH), the economic performance grew by 1.9% in the first three months from the previous quarter and, as the raw data shows, decreased by 2.3% from the same period of last year. The pace of the contraction eased from 3.5% in Q4 2020. The annual shrinkage was 1.8% according to seasonally and calendar adjusted and reconciled data for the first quarter.

The main drivers of the increase were industry, financial and insurance activities, and information and communication, KSH said in its preliminary release.

Péter Virovácz, head analyst at ING Bank, said the data had surprised even the most optimistic analysts. “The fact that the Hungarian economy was able to show such dynamic growth on a quarterly basis in a quarter which showed a rather mixed picture in advance means that there is a much higher recovery potential in the economy than expected,” he said.

He also raised his forecast, emphasizing that it might be more realistic now that the Hungarian economy could expand at or above 6% annually this year.

Increased Demand

“All this means a significant increase in aggregate demand, which will be accompanied by increasing internal inflationary pressures,” he added. According to him, the Hungarian economy might return to its pre-crisis level even before the summer.

Players in the Hungarian economy have gotten accustomed to the restrictions, and segments affected by the lockdown have learned to deal with the hardships; thus, the constraints have held back the economic performance a lot less than previously expected, Gábor Regős, from economic think-tank Századvég, commented.

However, he noted that the performance of the various sectors has been diverse: while tourism has been likely to hold back the economy, industry has contributed to the growth.

“The positive data shows that the economy has a better-than-expected potential for resilience and restart; therefore, annual growth might be higher than estimated earlier and could come to around 5%. Savings and increased spending can also play a big role in it; however, a lot depends on how fast international tourism will be back on track,” the analyst says.

Gergely Suppan, head analyst at Takarékbank, said that the latest data clearly shows the strong resilience and recovery ability of the Hungarian economy. Due to the excellent pace of vaccinations and the gradual easing of restrictions, a quick rebound is expected from the second quarter of the year.

Quick Rebound

The revival of European and overseas tourism, the robust performance of the U.S. economy, and the large sums of EU funds will further accelerate the recovery process from the second half of the year. According to Suppan, the Hungarian economy might return to its pre-crisis level by the third quarter of this year at the latest. However, it might happen even sooner, Suppan says. He also uplifted his expectations for annual GDP growth from 6.6% to above 7%.

“According to the GDP data of the first quarter, the Hungarian economy started the year well above expectations,” Minister of Finance Mihály Varga commented on the data. He attributed the growth to “a successful vaccination program and an effective economic policy.”

He noted, “Hungary has started to catch up, gaining a step-up advantage among EU member states, and can expect double-digit growth in the second quarter.” The government expects the Hungarian economy to grow by 4.3% in 2021, after a recession of 5.1% in 2020.

Hungary’s first-quarter GDP data was enough to put the country near the top of the list compared to EU peers, but not quite enough to make it into the first three. In the first quarter of 2021, seasonally adjusted GDP decreased by 0.6% in the euro area and by 0.4% in the EU, compared with the previous quarter, according to a flash estimate published by Eurostat, the statistical office of the European Union.

Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 1.8% in the euro area and by 1.7% in the EU27 in the first quarter of 2021.

The European Commission (EC) is even more optimistic than the Hungarian government: even before the latest GDP data came to light, the EC had raised its growth projections for the Hungarian economy in its spring economic forecast. The EC now predicts 5% annual growth, up from the 4% it said in its winter forecast in February, while the Hungarian government puts 2021 GDP growth at 4.3%. As for 2022, the EC said Hungary’s economy was expected to expand by 5.5%.

Numbers to Watch in the Coming Weeks

The Central Statistical Office (KSH) will publish data on the state of the April labor market on May 28. The next day, we will find out how much money Hungarians made in March. First-quarter investment data will be released on May 31, followed by a detailed reading of the first-quarter GDP data by KSH on June 1.

This article was first published in the Budapest Business Journal print issue of  May 21, 2021.

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