Hungary’s gross domestic product grew by 5% according to raw data and by 4.8% according to seasonally and calendar adjusted and reconciled data in the third quarter of 2019 compared to the corresponding period of the previous year, the Central Statistical Office (KSH) reported in a flash estimate.  

Compared to the previous quarter, the volume of GDP grew by 1.1% – according to seasonally and calendar adjusted and reconciled data – in the period between July and September. According to the KSH report, the main contributors to the growth were industry, construction and market-based services.

When placing the data into a European Union perspective, it shows that Hungary’s growth rate of 4.8% (on the seasonally adjusted data) is the highest amongst the 28 member states. It is worth noting that several countries have not yet reported the data; however, among them only Ireland might produce a higher growth rate, as it registered a 6% GDP increase in Q2 and 7% in Q1.

Commenting on the Q3 data, Minister of Finance Mihály Varga highlighted that Hungary’s data was well over the 1.4% average of the EU member states. He noted that growth was supported by the measures introduced by the Hungarian government, which aimed at improving competitiveness, supporting home construction, and better utilization of EU funding. Investment incentives also helped the growth.

Economic Shield

Varga also emphasized that the Hungarian government was quick to decide on defensive measures to shield the economy from the worst of the effects of the global economic slowdown. He said further economy protection measures would be introduced in the spring.

The better-than-expected third quarter GDP data has underpinned analysts’ optimistic expectations for the full year. Now they unanimously say that the annual expansion of the Hungarian economy will be 5%, or very close to it. As for next year, when all institutions have warned that growth should slow down due to external factors, analysts are also more optimistic in the light of the fresh data.

The 5.1% growth rate in the first three quarters of the year will keep Hungary in the top league of the European Union, ING Bank head analyst Péter Virovácz said. As for the full year, he expects that the growth rate will be very close to 5%, in spite of the fact that some slowdown is expected in the fourth quarter.

He also noted that the effect of the strong growth rate on inflation might be higher, although the National Bank of Hungary is not expected to change its monetary policy, he believes. Stronger growth means that next year’s budget will have a bigger room for maneuver in order to maintain the significant growth rate, he said.

Takarékbank analyst Gergely Suppan said that the main driver behind the strong data was industry, which also produced a significant increase, as well as the retail sector. He noted, on the other hand, that the construction sector slowed a little; however, it was still dynamic in and added to the third quarter GDP growth. An increase in domestic consumption, the slightly decreasing but still robust investment rate and the improvement in the foreign trade balance also contributed to the good results.

Slowdown Ahead

Although a slight setback might be seen in the coming months, a notable slowdown is not expected, Suppan opined. For this year, he expects a 4.9% annual GDP growth rate, which might slow to 3.7% in 2020, however, internal factors might mean there are upward risks to the ratio.

Századvég analyst Gábor Regős commented that there are no signs of a slowdown, with the performance of the Hungarian economy among the best in the EU. He agreed that domestic consumption and an increase in investment volume had pulled the economy upwards.

Similarly to his colleagues’ expectations, he sees that GDP growth will come close to 5% this year. However, in order to maintain the exceptional growth rate, he cautioned that Hungary’s competitiveness needs to be improved, exports should be kept at their current high level, and education needs to be developed.

The internal drivers of the Hungarian economy are so strong that they can efficiently counterbalance the slowing effects of the external environment, said Orsolya Nyeste, head analyst at Erste Bank. In spite of the upbeat expectations, Erste Bank’s forecast was previously the lowest; now, however, the bank thinks that the earlier projected annual growth rate of 4.6% will likely be closer to 5%.

Next year, the rate will fall back to 3-3.5%, although household consumption might have a positive effect on the economy. She noted, however, that the limited access to EU funding from next year might have a negative impact on investments, which could drag the growth rate down to closer to 3% in 2020.

Numbers to Watch in the Coming Weeks

Just one day after this edition of the Budapest Business Journal goes to print, the KSH will publish third quarter data from the investment market. On November 29, the second estimate of the Q3 GDP figures will be released. On December 5, we will find out how the retail sector performed in October, and a day later, October’s figures from Hungarian industry will come out. A few days after that, on December 10, the KSH will report on the November consumer price index.