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Analysts: GDP to grow around 2% this year

After growth rebounded in the second quarter, economists say they expect Hungary to finish ahead of the EU average but behind some of our neighbors when it comes to GDP for 2016.

When the final GDP numbers come out on September 6, analysts said they should confirm estimates that growth this year will be slightly above 2%. 

While that may be a slower rate than last year, it is an improvement on the opening quarter of 2016, which was the first quarter with negative GDP growth in four years.

The analysts cautioned that the preliminary GDP data published on August 12 by the Hungarian Central Statistical Office (KSH) showed surprising variation between raw and workday figures, so that they would not be confident of the actual GDP growth rate in the first half until the final number comes out. Still, there seemed to be consensus on a rate of just above 2% in 2016. That growth rate will probably surpass the European average, but be lower than that some of our Central European neighbors

“It is probably still too early to analyze the figures published today, as detailed figures will be published on September 6, but it can clearly be seen that it was chiefly market services, industry and the agriculture sector that contributed to growth,” Mónika Kiss, Head of Research at Equilor Investment, told the Budapest Business Journal on August 12. “The picking up of services could be felt earlier through price increases in the sector, while the German economy is expected to lift exports,” she added.

Like most analysts, she suggested growth for this year would probably be slightly above 2%.

“To reach 2.5% GDP growth by the end of the year would require really strong momentum in the second half, and caution arises due to the fact that calendar-effect and seasonally adjusted data is lagging unusually behind the raw, unadjusted data,” Kiss commented.

In the second quarter, GDP was up 2.6% according to year-on-year unadjusted data, while working day-adjusted (WDA) data shows 2.2% growth, said a CIB flash that came out after the August 12 publication of the new figures. Seasonally and working day-adjusted (SWDA) data show only 1.7% growth in y.o.y. terms, while the same data reveals only 1.1% growth compared to the first quarter, according to CIB.

“Q2 GDP posted a y.o.y. growth rate above the market consensus of 1.9%-2%, but both the WDA and SWDA figures warrant a cautious view of the growth data as they show a larger than usual deviation from the raw (unadjusted) figure,” the CIB flash noted. “The quarter-on-quarter figure (+1.1%) shows that Q2 2016 was the second strongest quarter of the last three years, but the y.o.y. figure consistent with this calculation shows only 1.7% growth,” the CIB flash added.

The CIB analysis confirms that services, industry and agriculture delivered support to the relatively rapid growth. However, the construction sector continued to be a drag on the overall growth rate, following an already extremely weak first quarter with double-digit drops. “At the same time, industrial production showed significant improvement versus the first quarter […] the service sector was supported further by strengthening domestic demand. In tandem with the stronger industrial performance, net exports were also seen as a strong driver of growth, with moderate dynamics on the import side,” the CIB flash said.

“We are going to adjust our annual GDP forecast based on the detailed official figures. Based on the preliminary Q2 figure, we foresee an annual GDP growth rate close to or slightly above 2% in 2016,” the CIB flash concluded, which is in line with the market consensus of Hungary’s GDP to be around 2%-2.3% by the end of the year.