The slack performance of industry and construction was behind Hungary’s feeble economic groth of just 0.9% y/y in the first quarter of the year, statistics office KSH confirmed on June 7 as it issued a second estimate offering details.
Following up its preliminary estimate from last month, KSH’s report shows that domestic consumption was unable to counterbalance sharp dips in the industrial and construction sectors. The result represents the slowest pace of annual growth since Q1 2013 – and raises worry for the rest of the year.
On a quarterly basis, the economy shrank 0.8%, raising the prospect of a technical recession should industry not emerge from its stupor in April-June. According to seasonally and calendar adjusted data, Hungary’s economy grew 0.4% y/y.
The weakness follows the robust 3.2% GDP growth registered in the final three months of 2015. However, that quarter saw a rush to claim the last EU funding available under the bloc's 2007-13 budgetary window. Economies across the region have seen public investment projects fade dramatically this year, which has hit construction hard.
In Hungary, construction output plummeted 28% y/y in the first three months of 2016, with civil engineering driving that dive. Meanwhile, the industrial sector shrank 0.7% y/y and agriculture fell 3.5%. The service sector struggled to limit the damage even as it grew 3%, with a 4% rise in final household consumption behind much of that expansion.
Construction lowered the headline GDP growth rate by 0.7 pp, while industry and agriculture each hit it for 0.1 pp. Services contributed 1.6 pp, with the contribution of wholesale and retail trade as well as accommodation and food services the most significant.
Economy Minister Mihaly Varga last month insisted that the poor GDP data is only "temporary”. The official noted that a surge in the number of building permits issued in January-March - which jumped to 4,765, twice as many as in Q1 2015 - raises hopes that activity in the construction sector will see a significant rise in the coming months.
At the same time, alarmed by poor GDP growth, the Hungarian government started preparing an economic stimulus package, which includes speeding up preparations for state projects and boosting the investment market.