Finance Minister Mihály Varga (Illustration) – (Photo: MTI)

OECD more optimistic on Hungary's GDP growth forecasts

Economy producing the goods

Hungary's third-quarter GDP grew by an annual 5 percent, the Central Statistical Office has confirmed in a second reading of data. Analysts, the government and a revised projection of the Organisation for Economic Co-operation and Development expect full-year growth also to be around 5 percent.

On the production side, value-added in the industrial sector rose 7.6 percent during the period. Within the sector, manufacturing expanded 8.1 percent. Growth in the construction sector reached 18.1 percent, while the farm sector contracted 1.6 percent.

The service sector expanded 3.9 percent, as the retail and wholesale trade, commercial accommodations and catering segment grew 8.7 percent and the infocommunications segment increased 6.4 percent. Professional, scientific, technical and administrative activities grew 5.2 percent.

On the expenditure side, household final consumption increased 5.0 percent. Gross fixed capital formation jumped 16.1 percent. Export volume rose 8.3 percent and import volume was up 7.4 percent.

Headline GDP growth accelerated from 4.9 percent in the previous quarter. Adjusted for calendar year effects, GDP growth reached 4.8 percent year-on-year in Q3, down from 5.1 percent in Q2. Reconciled data, adjusted for seasonal and calendar year effects, show GDP growth slowed to 4.8 percent year-on-year in Q3 from 5.2 percent in Q2.

In a quarter-on-quarter comparison, GDP growth was 1.1 percent in Q3, level with the rate in Q2, adjusted for seasonal and calendar year effects. For the period Q1-Q3, unadjusted GDP grew 5.1 percent year-on-year.

ING Bank chief analyst Péter Virovácz said the industrial sector had made the most significant contribution to GDP growth in years, although the contribution of services remained in the forefront. On the consumption side, the most important change was the positive contribution of the trade balance, he added. He said Hungary’s full-year GDP growth could remain very near 5 percent.

Erste Bank senior analyst Orsolya Nyeste also noted the positive impact of higher net exports on growth but said the engine of growth remains domestic consumption. She put full-year growth at 4.9 percent.

Takarékbank senior analyst Gergely Suppan put full-year GDP growth at 4.9 percent. Next year growth could slow to 3.7 percent, he said, but noted that domestic demand presents upside risk for that projection.

The economy is expected to grow 4.8 percent this year and by around 4 percent next year, Finance Minister Mihaly Varga said after attending a meeting of the National Competitiveness Council, a body of business leaders and professionals that makes recommendations to the government.

Hungary’s economic growth of around 5 percent this year could “even be the best” in the European Union, Gergely Gulyás, the head of the Prime Minister’s Office, said. Gulyás announced that the government is preparing to launch a second economic action plan early next year to protect the economy from negative trends in other countries of the EU.

The Organisation for Economic Co-operation and Development (OECD) raised its projections for Hungary’s GDP growth this year and next in a biannual forecast. The OECD raised its forecast for this year’s growth to 4.8 percent in its latest Economic Outlook from 3.9 percent in the previous issue released in May. The OECD raised its projection for GDP growth in 2020 to 3.3 percent from 3.0 percent, and it put growth in 2021 at 3.1 percent.

In a country note, the OECD said domestic demand is the “main driver” of growth. Household demand is being boosted by higher employment and real wages, record high consumer confidence, home construction support schemes and “very accommodative” monetary policy, it said. Other investments are being lifted by absorption of European Union funding, capacity expansions, foreign direct investment in the automotive sector and supportive monetary policy, it added.

Private consumption will continue to drive growth as real incomes rise but public investment will decelerate as payouts of EU funding decline, the OECD said. Capacity constraints would bolster business investment and imports, while the tightening labour market continued to push up wage and price inflation.

Among the downside risks to growth, the OECD put rising inflation expectations caused by higher-than-projected wage increases and a further slowdown on Hungary’s export markets. Upside risks include lower-than-projected import price growth.

The OECD said fiscal policy will “remain supportive” and the National Bank of Hungary is expected to continue its loose monetary policy stance.

The OECD recommended counter-cyclical policy measures to address signs of overheating and inflation expectations, and it said policies bolstering labour mobility and labour supply, including the expansion of early childhood care, would prolong the recovery.

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