Hungarian economic growth outlook deteriorates, GDP likely to grow 1.6 pct this year

The Hungarian economic growth is expected to struggle to attain even the sub-consensus projection of 2.2 percent growth in 2016, said Commerzbank in a research note. The economic growth was up by less than one percent, annualized, in the first half of this year. The country released quite a weak manufacturing data for July, where output declined 0.6 percent in sequential terms after the 2.4 percent month-on-month decline in June.

July’s manufacturing print is subdued enough to raise questions regarding the usual interpretation that the entire 2016 soft patch has been due to the pause in EU fund absorption.  There seems to be more going on. The impact of EU funds can emerge mainly in the fixed investment’s behaviour. In the first half of 2016, fixed investment saw a sharp decline of 15 percent year-on-year.

The real economy indicators in the around the region have taken a down turn. July’s industrial output data from around the CEE unexpectedly declined. Output in Hungary fell 0.6 percent, whereas in Czech, output declined greatly by 9.7 percent month-on-month.
In case of Hungary, the level of output has remained flat all year on average with gains since 2014 nearly reversed. It is not expected to be reversed entirely just because EU funding might rebound in the second half of this year.

Auto majors have vowed to stimulate their capacities in the country in 2016 that might probably give some support to fixed investment, particularly because such capacity growth is lumpy by nation.

“We forecast better than 1% q/q GDP increase during both Q3 and Q4 as a result of the combination of a pickup in EU funds and auto sector investments”, noted Commerzbank.

According to the Commerzbank, the Hungarian economic growth is likely to grow 1.6 percent this year and 2.5 percent next year. Also, the central bank is expected to soon launch fresh monetary easing again.

“We forecast the policy rate will be cut to 0.5 percent during the first half of 2017. On this basis, EUR/HUF is forecast to return to the 320.00 region in coming quarters”, added Commerzbank.