Hungary’s economy grew just 0.9% on an annual basis in the first quarter of the year, statistics office KSH reported in a flash estimate on May 13.

The result is disappointing, representing the slowest rate since Q1 2013, and well below market consensus for a 2% expansion. The remarkable slowdown suggests domestic consumption has not been able to counterbalance the feeble performance of the industrial and construction sectors.

In its estimate, KSH only noted that "the growth rate was raised by market services and reduced slightly by industry and significantly by construction." The statistics office will publish detailed data on June 7.

Although there were other points of weakness amongst the quarterly GDP data published across the region - Poland, Romania, Slovakia and Bulgaria also reported on May 13 - “the major surprise came in Hungary," analysts at Capital Economics note.

Indeed, Hungary's first quarter performance clearly lagged, and raises worry for the rest of the year. “Q1 data makes it probable that that GDP growth in 2016 might come in below 2%” analysts at CIB bank commented.

According to seasonally and calendar adjusted data, Hungary’s economy grew 0.5% y/y, and slowed 0.8% on a quarterly basis. The weakness follows a robust 3.2% GDP growth registered in the final three months of 2015, with a rush in that quarter to claim the last of the EU funding available under the 2007-13 window having a palpable effect.

As the volume of EU-funded projects faded, construction output plummeted throughout the first three months of 2016, to a decline of 33.9% y/y in March. The already feeble performance of Hungary's industrial sector in 2016 also crumpled in March. The remarkable drop in the output of the auto sector drove the latest industry data into the ground, decreasing 4.6% y/y in March.

Economy Minister Mihaly Varga insisted that the poor GDP data is only "temporary”, MTI reports. 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.

In an additional bid to support the sector, the government has lowered the value added tax on home building to 5% from 27% in 2016-2019, and announced a new housing subsidy programme and a scheme to set up state-backed building societies.