Are you sure?

Rebound in private consumption is bright spot in 3Q GDP

An apparent rebound in private consumption is one of the most profound features in Hungary's preliminary growth figures for the 3rd quarter, London-based emerging markets analysts said after the first estimate showing a 1.6% yr/yr GDP growth, well above consensus, had been released.

Analysts at JP Morgan said their model based on the monthly activity data suggests that domestic demand has “moved from a drag of 2% pts on over-year-ago GDP to a positive contribution of nearly 1% pt”.

“We maintain our full-year GDP growth forecast of 1% for 2010, although the strong q/q expansion in 3Q poses some upside risk to this figure”. Next year JP Morgan sees growth accelerating further to 2.8% as domestic demand should continue to revive on the back of sizeable personal income tax cuts and improvement on the labor market. That said, “our forecast for private consumption expenditure is not as optimistic as the government's ... as we believe a larger portion of the tax cuts is likely to be saved”.

Goldman Sachs said that “comments from the KSH indicate that a turnaround in private consumption, ultimately recovering after falling for 10 quarters, might have supported the recovery”. If indeed higher private consumption supported Q3 growth, this would be “an important reversal of earlier trends as it would have occurred despite HUF depreciation, and thus a higher FX debt burden being placed on the households”.

“We forecast that growth will reach 1.2% in 2010 on average and 2.7% in 2011”, Goldman Sachs said.

In a research note discussing the latest GDP growth data from a number of CEE economies, Capital Economics, a major London-based investment consultancy said, however, that it still seems that industry, and industrial exports in particular, was the key driver. This in turn owes much to the strength of Germany's manufacturing-led recovery. “It is no coincidence that those economies that are most heavily integrated into German supply chains - Slovakia, the Czech Republic and, to a lesser extent, Hungary - performed best”.

Looking ahead, however, there are already signs that German industry will slow over the coming months, and this slowdown is likely to gather pace over the course of 2011. “Needless to say, a slowdown in Germany would remove the key prop to growth in Central Europe ... growth in pretty much every country (in the CEE region) is unlikely to reach the rates seen prior to the onset of the crisis.”

Capital Economics said it sees the Hungarian economy expanding by 1% this year, 2% next year and 3% in 2012. (MTI – Econews)