Hungary’s economy grew by 3.5% y/y in Q1 2014, speeding up from a 2.7% y/y rise in the previous quarter, the statistics office said on June 4, confirming the flash estimate released two weeks ago. The seasonally and calendar adjusted data showed GDP increasing by 1.1% q/q in Q1, following a 0.7% q/q rise in Q4 2013.

On the supply side, the industry expanded by 6.7% y/y in Q1, growing for the third quarter in a row after declining in the previous five quarters. The manufacturing industry grew by 9.6% y/y in Q1, speeding up from 5.1% y/y in Q4 2013 on the back of a strong performance of the manufacture of transport equipment and the related supplier branches as well. The industry contributed by 1.6pps to the quarterly GDP growth. The construction sector increased by 25.2% y/y supported by both construction of buildings and the civil engineering segment. The growth in Q1 speeded up from 10.4% y/y in the previous quarter and contributed by 0.5pps to the quarterly GDP growth. The gross value added of the services sector was up 1.5% y/y in Q1, only slightly faster than the 1.2% y/y rise in Q4 2013. Within services, all sectors saw an annual increase with the exception of financial and insurance as well as real estate activities. The service sector had a 0.9pps positive contribution to GDP growth. On the other hand, the agriculture output decreased by seasonally and calendar adjusted 5.8% y/y in Q1, reversing a 22.3% y/y rise in the previous quarter. The sector contributed with negative 0.2pps to the GDP growth in the quarter.

On the demand side, gross capital formation increased by 12% y/y as investments registered a 13.3% annual growth in Q1. Gross capital formation contributed with 1.6pps to the GDP growth in Q1, higher than in the previous quarter (+0.5pps). Consumption increased by 1.9% y/y, driven by a 3.5% rise in government consumption and a 1.6% y/y rise in private consumption. Consumption has a positive contribution of 0.4pps to the GDP growth in Q1. Net exports contributed 0.5pps to the GDP growth in the period as well, after exports increased by 7.5% y/y and imports were up by 7.6% y/y.

In regional comparison, Hungary’s seasonally adjusted GDP (up by 3.2% y/y) outperformed the euro zone (0.9% y/y) and was the third top performing economy in the EU, Eurostat data showed. Romania’s GDP advanced 3.8% y/y in Q1 and Poland witnessed a strong 3.5% y/y GDP growth. Hungary’s main trade partners, Germany and Austria saw their economies growing by 2.3% y/y and 1% y/y, respectively in Q1 2014.

In light of the better-than-expected Q1 GDP data, the annual economic growth in full-2014 could exceed by 0.3-0.6pps the government's 2.3% GDP growth projection, the economy ministry commented. The OECD and the IMF projected a 2% y/y increase. Last month the European Commission forecast a 2.3% economic growth for Hungary, while the World Bank sees it at 1.7%.