Hungarian investment surged 34% y/y in the first quarter, the quickest pace on record, according to data from the statistics office (KSH) released on May 30.
The huge gain stems from the low base last year. A sharp slowdown in the absorption of EU funds led to a drop of 20% in investment in 2016. However, as hinted by a recovery in the industrial sector early this year, public projects powered by Brussels now appear to be back on track.
The recovery of investment is widely thought to be behind the strong GDP growth data for Q1 reported recently. Detailed data on that economic expansion has not yet been released. The government was quick to claim the rebound in investment is likely to push full year growth above 4%.
Seasonally adjusted growth in the first three months of 2017 was 7.4% q/q. The steep rise in investments was fulled by EU funded project and added manufacturing capacities but more importantly the low base figure, KSH confirmed.
”The volume of investment totalled HUF1,033bn, the highest growth rate ever registered," Economy Minister Mihaly Varga said. "If this rate of expansion continues, the governments growth target of above 4% can be achieved in 2017 and 2018.” The plunge in investment last year saw economic growth stall at 2%.
Investment activity rose dynamically in 17 out of 19 sectors, including a 25% rise in in machinery and equipment and a 49% increase in construction. Hungary's construction output extended gains in the first quarter, rising 25% as it was supported by improved absorption of EU funding and the government’s CSOK home subsidy scheme.
Analysts said investment growth will slow down in the second half due to a higher base, but will remain steady. The construction boom and new capacities in the vehicle sector will push the full-year expansion to 20% in 2017 and 10% in 2018, Takarekbank forecasts.
Investment performance grew by 40% in the case of enterprises employing at least 50 persons and realising six tenths of investments and by 31% in the public sector, due to the resumption of EU-financed developments in public administration, defence and education.
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