The 1.5% second quarter figure has been the worst quarterly growth since the second quarter of 2010 and it has also been one of the weakest result in the EU. Alarmingly, exports, the main driver of economic growth, showed a one-digit rise of 8.8% in the period, after quarterly increases of well over 10% since the last quarter of 2009.
Lower-than-expected growth in Hungary was first of all the result of external factors, according to National Economy Ministry. Eurostat data shows that the gross domestic product of EU27 was up by only 1.7% in Q2 2011, compared to the same period of previous year. According to the available data, near half of the member states showed a higher economic growth than the EU average. Five member states, including Hungary, had a performance near the EU average, while a decline was registered in Greece and Portugal.
The performance of the German economy, Hungary’s main export market, declined significantly, compared to the outstanding 5% growth of the first quarter. The disappointing 2.8% figure was mainly due to the weak final consumption of households and capital formation in construction, according to Germany’s Federal Statistical Institute (DeStatis). In addition, the Hungarian economy was badly hit by the dramatic appreciation of the Swiss franc, which led to a drop in purchasing power due to the growing burden of loan repayments.
Research institute GKI points out that economic policy, too, played an important role in the slowdown. The increase in real wages, which was limited to high earners only, could not raise consumption, whereas crisis taxes have curbed corporate investment demand as well as lending activity. The GKI also blames legal uncertainty and lack of predictability for the slowdown.
Trends witnessed on the domestic market are not promising, either. Domestic sales in the industrial sector have been decreasing for four years, the GKI said. Retail sales and construction have been declining for five and six years, respectively. In agriculture, however, the bad harvest of last year will be followed by an excellent one in 2011, helping GDP, exports, and also dampening inflation.