Statistics Office confirms Hungary in recession in Q4

Statistics Office confirms Hungary in recession in Q4
/ bne IntelliNews
By Tamas Csonka in Budapest March 3, 2023

Hungary's annualised GDP growth slowed to 0.4% in 4Q from 4.0% in the previous month and adjusted for seasonal and calendar year effects, growth was 0.8%, the Central Statistics Office (KSH) confirmed in a second reading on March 2. On a quarterly basis, GDP edged down 0.4%, falling for the second quarter in a row, confirming the technical recession in Hungary since the start of Q3.

For the full year, GDP growth reached 4.6% (chart), around 1pp above the EU average, according to preliminary figures.

First-half growth was boosted by a pre-election spending splurge, government handouts to families and massive public investments. The carry-over impacts of the government’s procyclical fiscal policy coupled with loose monetary conditions after the pandemic lifted growth. The government stepped on the brake with Hungary incurring a twin deficit as energy prices soared and the budget was overstretched. The budget hole was plugged by windfall taxes on a number of sectors, the scaleback of energy subsidies, and the postponement of HUF2 trillion (€5.3bn) of public investments.

According to analysts, a short-lived technical recession is the most likely scenario as economic activity will rebound in 2H and Hungary will likely avoid a recession.

On the production side, growth in the fourth quarter was mainly driven by industry and services, although to a lesser extent than in previous quarters, adding 1.7pp and 0.5pp to headline growth respectively, while the farm sector, hit by drought, shaved 1.0pp off headline growth. Construction’s contribution was 0.1pp.

On the expenditure side, final consumption contributed 0.5pp to growth, while gross capital formation cut 0.6pp off the headline figure. The trade balance added 0.5pp to headline growth.

For the full year, services added 4.1pp to headline growth, while industry contributed 1.0pp and construction 0.2pp. The farm sector cut growth by 1.0pp.

On the expenditure side, final consumption contributed 3.5pp to headline growth, gross capital formation 0.4pp and the trade balance 0.7pp.

The combined impact of fiscal adjustment from the second half and the high-interest rate environment has dented consumption and investments, while services and net exports remained strong.

Hungary’s economy in the first half of 2023 will likely stagnate, with GDP growth in the second quarter offsetting the drop in the first three months, as high inflation will stifle private consumption to investments, ING Bank analyst Peter Virovacz said in a note.

Domestic demand and net exports will be the drivers of growth in 2H as disinflationary effects accelerate and the external environment improves, bringing full-year growth to around 0.7%, he added.

In line with the moderation in price dynamics, we expect the economy to pick up from the second quarter onwards, supported by global conditions from the second half, helping Hungary’s export-oriented economy, according to Erste Ban.

The bank has earlier raised its target from 0.2% to 1.0%.

The government targets 1.5% growth for the year.