Hungary's economy steams ahead but slowdown expected next year

Hungary's growth expanded 0.6% in Q3, slightly faster than expectations. The near-term economic outlook is also fairly strong with industrial production growing almost 13% y/y in October, one of the highest growth rates in Emerging Markets. Manufacturing PMI rose to 56.2 in November from 55.3 in October, while private consumption is boosted by high consumer confidence, record low unemployment (10-year low) and retail sales growing at a relatively healthy rate (4.5% y/y in October).  

However, one of the main drivers of strong growth in Hungary is the large absorption of EU structural funds. The absorption is set to decline sharply in 2016 as the current EU programme draws to an end. Given that absorption will not rebound until 2017, GDP growth will fall somewhat next year.