Hungary’s weak September industrial production indicates subdued Q3 GDP growth

In the year to October 2016, Hungarian’s consumer price inflation accelerated to 1 percent, thanks to strong base effects and increased labor input costs from an overheating labor market and labor shortages, noted Barclays in a research report.

In recent quarters, Hungary’s economic growth has followed industrial production. The unexpected drop of 3 percent in September industrial production, as compared with a consensus projection of a growth of 3.2 percent, suggests subdued growth in the third quarter of 2016. This is assuming that the pattern still holds.

This might be in line with the growth projection of 0.2 percent in sequential terms and 1.6 percent on annual basis in the September quarter, stated Barclays. But, given that the accelerating consumer price inflation and the already low policy rate of 90 basis points, the National Bank of Hungary would have restricted space to lower interest rates in response to this data development, according to Barclays.

However, the government’s fiscal stimulus of 0.6 percent 2015 GDP, which would be implemented at the start of 2017, is expected to result in expansion of economic growth to 2.8 percent in 2017 and 2.5 percent in 2018 from the anticipated 1.6 percent this year, added Barclays.