Hungary's Q2 GDP grew 17.9% y/y after a double-digit decline in the base period, and climbed 2.7% on a quarterly basis after a 2.1% decline in Q1, the Central Statistics Office (KSH) confirmed in a detailed second reading of data released on September 1. Quarterly data beat analysts' expectations in both quarters.
Data confirms that the Hungarian economy has recovered quickly and reached pre-crisis levels. The growth structure remained balanced as output was lifted by dynamic growth in services and industry.
On the production side, industry contributed 7.3pp to the Q2 headline increase, services 7pp and the construction sector 0.9pp.
Despite supply-side difficulties, Hungary’s industry showed robust growth in Q2, expanding 37% y/y, including manufacturing, up 40% y/y. The automotive sector was the driver of growth, the KSH said.
The gross value added of services together increased by 12.4%. The strongest growth was recorded in accommodation and food services and health and social work. Within services, commerce, vehicle repair, and the commercial accommodations and catering sectors accounted for 2.2pp of the increase. Preliminary data from Q3 suggests that domestic booming tourism will lend support to the sector.
The value-added of construction increased by 18.4% and that of agriculture by 1.1% on an annual basis.
State subsidies and pent-up demand for residential construction have lent support to the construction industry, which is also benefiting from large-scale state-funded infrastructure projects. The trend will likely persist well beyond the election year in 2022, analysts said. The main drag on growth in this sector is input shortages and surging prices, which could have an impact in H2.
On the expenditure side, final consumption contributed 6.0pp and gross capital formation 5.4pp to the headline increase. The trade balance lifted GDP by 6.5pp. Household consumption increased 1.7%, while public consumption fell 2.3%.
The level of consumption is close to the pre-crisis levels, and that of investments is already above that. The volume of trade has also bounced back to early 2020 levels, but transport and tourism still have room to grow.
Data show the structure of production-side growth was relatively balanced, while services and household consumption drove growth on the expenditure side, ING Bank chief analyst Peter Virovacz said.
He predicted q/q growth of 1-1.5% in Q3, supported by a pick-up in expenditures on services during the summer months.
Analysts are expecting Hungary’s economy to post a record 7% growth or even higher as the main drivers of growth are expected to remain strong. The government’s expansionary fiscal policy is also expected to support growth in consumption and the service sector.
With a strong showing of the construction and the industry this could translate to a record growth of 7% and possibly as high as 8% provided that the fourth wave doesn't impact the economy. Analysts do not project wide-scale restrictions in H2.