Hungary's GDP grew 0.9% quarter on quarter in Q3, beating forecasts and marking the end of a technical recession that has lasted a year, showed data released by the Central Statistics Office (KSH) on November 14. The data exceeded the consensus. In annual terms, economic output fell by 0.4% (chart), and by 0.3% when adjusted for seasonal and calendar year effects.
The detailed breakdown will be available next month, but the KSH said industry and market services, specifically commerce along with technical and administrative activities, played the biggest role in the decline, which was mitigated by the good performance of the agricultural sector.
The decline in value added of services was countered, in part, by the "significant increase" in the healthcare and social services branch of the economy, the KSH said in a short note.
Hungary’s GDP in the first nine months shrank by 1.2% year on year.
Analysts highlighted the dual structure of Hungary’s economy, as the performance of export-oriented sectors remained stable, while companies producing mainly for the domestic market have suffered from falling demand and high borrowing rates.
While data suggests that the economy bottomed out in the July-September period, the recovery will be long and strenuous, Amundi brokerage said. High-frequency data describing domestic demand and the external environment still point to weak growth, it added.
Real wages are turning positive and industrial exports are strong, but that may not be able to push the full-year figure over zero, analysts commented. For the full year, they forecast a contraction between 0.1 and 0.9% for 2023.
Consumer confidence could slowly recover, helping household consumption turn positive as inflation falls deeper into single-digit territory, which could also help revitalise lending activity, crippled by high borrowing costs.
The decline in the base rate to 6-7% in 2024 along with the gradual inflow of EU funds, the rebound in investments and added capacities in the industry could bolster a 4% growth rate, according to MBH Bank.
Access to EU funds will be crucial, especially in the current tight budgetary situation, said ING Bank senior analyst Peter Virovacz. In the absence of EU funds, Hungary’s economic growth will only be 1-2%, compared with 3-4% if Hungary is able to secure at least part of the EU’s cohesion funds that are now suspended.
The government targets 4% growth in 2024, while it has yet to adjust its zero growth forecast for 2023.
In a video message posted on social media, Finance Minister Mihaly Varga said disinflation, real wage growth, stronger exports and higher output of the farm and industrial sectors had supported the rebound in the third quarter.
Economic Development Minister Marton Nagy commented that the quarterly figure was well over" the performance of EU states that have released data so far.
Nagy acknowledged that the recovery in annual terms presented a "big task". State-subsidised measures in corporate lending are expected to add at least 1.5%" to GDP, he said.