Hungarian Economy Slips Further into Recession with a 0.2 Quarter-on-Quarter Contraction in Q1 – bne IntelliNews

Preliminary figures released by the Central Statistics Office (KSH) on May 16 reveal that the Hungarian economy has contracted for the third consecutive quarter in the January-March quarter. It fell by 0.2% from the previous quarter, which was less than what analysts had expected at 0.6%. In comparison to the EU, Hungary’s Q1 GDP was the fourth lowest on a quarterly basis and the second worst on a yearly basis, with a decline of 0.9% year-on-year.

According to KSH, weak industrial performance contributed to the sharp decline, but agriculture and services moderated the decline. The healthcare sector performed well and drove growth in services, approaching pre-pandemic levels. KSH plans to release detailed data on June 1.

Experts expect the decline to bottom out in the first quarter of the year, and inflation is expected to be under control as the economy prepares for a recovery in the second half of the year. However, most Hungarian analysts expect GDP to grow between 0.5% and 1% this year, below the government’s target of 1.5%.

Despite high investment rates and heavy government subsidies, industrial production weighed on growth, while agricultural output is expected to increase after last year’s poor harvest. However, the positive surprise came from the services sector, likely due to the growth of private healthcare.

There are concerns that lower real wages may be holding back consumption, but easing inflation is expected to boost household purchasing power, leading to increased retail sales. Analysts also predict that the government will not make large fiscal sacrifices to maintain its growth targets, with the Excessive Deficit Procedure (EDP) set to be tightened from next year.

The Ministry of Economic Development said that subsidized corporate credit programs could contribute 1-1.2 percentage points to 2023 combined growth. Adding the effect of government-mandated interest rate freezes for households and SMEs could contribute two percentage points to GDP. Expansion in the car and battery production, agriculture, healthcare, and services sectors have already given impetus to GDP in the January-March quarter.

The EBRD revised its forecast for 2023 to 0.4% growth from a 0.2% decline in its latest regional economic outlook released in February. The banking households’ purchasing power is expected to decline this year, but FDI inflows and private investment are expected to underpin GDP growth. EU funds, especially from the RRF, are not expected to reach Hungary until the end of 2023 or 2024, although Hungary’s GDP growth is expected to accelerate to 3.5% in 2024 as external demand improves and real incomes recover.

Leave a Reply