Household consumption likely to remain key growth driver of Hungarian economy – Erste Group Research

The Hungarian economic growth decelerated in the second quarter from 4.2 percent year-on-year to 3.2 percent year-on-year. But this was mainly because of a one-off decline of inventories. In the meantime, underlying economic processes stayed robust. Investments surged 21.2 percent year-on-year, strongly aided by EU funds inflow.

The actual consumption of households accelerated to 3.3 percent year-on-year. Meanwhile, exports were up 3.5 percent year-on-year, with imports growing 5.1 percent year-on-year. Therefore, net exports’ contribution to GDP growth was negative in the second quarter. On the production side, services expanded 2.8 percent year-on-year, industry grew 3 percent year-on-year and construction rose 28.6 percent year-on-year. Meanwhile agriculture continued to weigh on growth.

According to Erste Group Research, the Hungarian annual GDP is expected to expand 3.7 percent in the whole of 2017. Household consumption is expected to remain a key growth driver, due to rebounding consumer sentiment and the ongoing fast-paced nominal wage growth that could lead to about 9 percent to 10 percent year-on-year real wage rise. The absorption of EU funds will continue, further underpinning investments. As risks surrounding the external trade channel have mitigated, industrial exports might be a strong support to growth as well. But owing to firming internal demand, imports could grow at a higher rate than exports.

“As favorable processes in the economy may continue next year, we have revised upwards our forecast for 2018 GDP growth to 3.4 percent, from 3 percent”, added Erste Group Research.

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