Hungary’s economy grew 2.2% y/y in the third quarter, statistics office KSH said on December 6, revising its preliminary estimate upwards by 0.2pp.

The better than expected result was supported by market services and agriculture, while the struggling construction sector continued to drag. Despite the upward revision, the Q3 result still represents a slowdown compared to the 2.8% growth in the previous quarter, confirming conviction in the market that Hungary will not meet the government’s 2.5% full-year growth target.

According to seasonally and calendar adjusted data, Hungary’s Q3 economic growth was 1.6% y/y, and increased 0.3% on a quarterly basis. GDP growth in the first nine months of the year reached just 2.1%.

In the third quarter, the growth of household consumption was limited to 3.8% y/y compared to 4.6% in the previous quarter. Although the services sector’s growth also slowed on a quarterly basis, it remained a dominant contributor in Q3, adding 1.3 pp to GDP growth.

The construction sector continued to struggle, lowering the headline reading by 0.4pp. The industrial sector fared better than expected as it contributed 0.2pp. The weather-dependent agricultural sector contributed 1pp to GDP growth.

The cabinet argues that its 2.5% growth objective can still be reached if strong domestic consumption produces robust growth in the final quarter of the year. At the same time, a deceleration in retail sales growth and a 2.1% y/y decrease in industrial production in October dent hopes for such a pick up. 

The "beginning of the fourth quarter has been quite weak and (...) GDP growth may not accelerate more significantly in the fourth quarter," analysts at KBC write in a note.