Hungary’s economy grew 1.1% year on year (chart) in Q1 and by 1.7% when adjusted for calendar effects, according to preliminary figures from the Central Statistics Office (KSH) released on April 30. In a quarter-on-quarter comparison, GDP increased by a seasonally and calendar year-adjusted 0.8%, above the 0.5% consensus, signalling a modest rebound after flat growth in Q4.

KSH released the figures T+30 days after the close of the quarter, a switch from its earlier practice of T+45 in line with new guidance, but that may increase the inaccuracy of the preliminary data, analysts noted.

In a short comment, it said GDP had been boosted the most by market services, especially the real estate and ICT segments, while the industrial sector, with the largest contribution, had weighed on headline growth. The Hungarian economy is expected to recover gradually after a recession in 2024, helped by the rise in real wage growth and the build-up of household spending.

The unfavourable external environment and the slowdown of major EU markets pose risks for Hungary’s export-oriented industry. The government hoped that the rising purchasing power of wages after a sharp decline in 2023 would spur an economic rebound, but at the same time, as disinflation gained momentum, the manufacturing sector encountered a deteriorating external climate.

 

The government cited the weak German economy for slashing its ambitious 4% growth target to 2.5% in March, which was confirmed by the finance ministry on Tuesday, 30 April. Minister Mihaly Varga said Q1 growth was supported by record high employment, an increase in real wages, rebounding consumption and stronger performances in the construction and tourism sectors.

Next year's growth could be among the top of the EU's rankings, according to forecasts by the European Commission and the IMF. Varga stressed the government's commitment to maintaining the 4.5% deficit target, which analysts believe will require more than just postponing HUF 675 billion of state investments as announced last month.

The size of the fiscal consolidation could exceed HUF1 trillion, likely timed after the June EP and local government elections. The delay of state investments and the arrival of EU funds or further restrictive fiscal steps could impose additional constraints on economic growth, pundits opine.

ING said it would be premature to revise its 2.1% GDP guidance after the slightly positive data, which is in line with most projections.

The HUF/€ was little changed after the publication of the data, trading in a tight range between 391 and 392.

Detailed data will be released on June 4.