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GDP increases below expectations - 'big disappointment' say analysts

Hungary’s gross domestic product (GDP) increased by 1.5% year on year in the second quarter, according to both unadjusted figures and data adjusted for calendar effects, the Central Statistics Office (KSH) has reported on Tuesday. The consensus forecast in a Portfolio.hu poll was for a 2.3% growth. In January-June, GDP was up 2.0% and by 1.9% when adjusted for calendar effects. According to seasonally and calendar effects adjusted data, GDP stagnated as compared to the previous quarter. "The estimate is based on scarce information, thus the final data may differ from the ones published in this flash estimate," the KSH said. The data is way below the market’s call - the consensus estimate in a Portfolio.hu poll came to 2.3%. It is not a real surprise though. Firstly because the data was leaked late on Monday (local news portal Index.hu reported that growth in Q2 was between 16-1.8%), which will most likely have consequences. Secondly, every recent macro release indicated that the economy without a doubt stepped on the breaks.  The industry, which has been a driving force of growth for a long time, has been showing a poor performance for some time now (IP was down 0.6% m/m in June) and the latest trade figures were also limp, implying that export growth was leaning on inventories in the past few months.  Of the producing sectors only the agriculture, which started from a low base, managed to show growth, while the outlook on the construction sector remains hopeless. Due to the low domestic demand the services sector had no chance of performing well therefore we can say there is no real engine of growth in the Hungarian economy at the moment. In view of this the estimates for a GDP growth of around 3% look unrealistic not only for this year but also for 2012, creating yet another challenge for meeting the budget deficit target. There are several reasons behind this spectacular deceleration/stop in growth. One of these is that the external business environment has become a lot worse over the past few months, while getting up from rock bottom in the crisis was attributable only to sharply rising industrial exports. Meanwhile, the internal engines failed to be ignited. The adjustment process among households continued, i.e. they remained net repayers, with smaller discretionary income than in the previous years. The banks’ lending activity remains subdued overall - Hungary may be the best example of the phenomenon known as 'creditless growth’ in the whole world. Provided there will be growth at all. The situation was made even worse by the soaring Swiss franc that also ate into discretionary income via the increase of instalments on CHF-based loans. Another consequence of this is that no matter how diligently households are repaying their debt every month, their virtually owe the same to the banks due to revaluation losses. Unfortunately, Hungary’s economic policy has failed to pick the right tools to foster growth. This is attested by the fact that while the budget’s structural balance has worsened substantially, the domestic engines have even become feebler. By implementing tax reductions the state virtually 'donated’ HUF 500 billion for high-income earners without making a meaningful impact on either the labour market or consumption. The outlook is not exactly rosy, quite the contrary. There is a danger of recession in the world economy and even if Hungary manages to stay out of it this time, global growth will be definitely kept low by the adjustment of the debt-ridden developed economies. Hungary will need to carry out a gigantic fiscal adjustment next year. And in such a weak external environment the reform-sized expenditure cuts will hardly create short-term fuel for growth. And the cabinet is likely to be forced to raise taxes too. 
Gergely Suppan of Takarékbank said the worse than expected data mean full-year GDP growth is unlikely to be much over 2%. In light of Q2 GDP data for Germany, Hungary's biggest export market, also published on Tuesday, it is a wonder Hungary's GDP didn't fall quarter-on-quarter, he added. The data also worsen the outlook for next year, even though the start of production at a plant Daimler is building in Hungary could add 0.6 percentage points to Hungary's GDP growth, Suppan said. As for earlier expectations of full-year GDP growth around 3%, Erste Bank's Zoltán Árokszállási said "forget it". Industrial output is slowing and the construction sector continues to contract, he added.Economic research institutes told MTI they would lower their GDP growth projections to 1.7-2.2% for this year and to 1.5-2.0% for next year because of the poor showing in Q2. Kopint-Tárki projected full-year growth for 2011 of 2.5% on Monday in a Reuters poll, but it now forecasts growth of 2.2%, with downward risk, the think-tank's chief Éva Palócz told MTI. Estimates were too optimistic for the service sector as well as inventories, she added. Kopint-Tárki knocked down its projection for 2012 GDP growth from 3.0% to 2.0%. Pénzügykutató chief analyst Mária Zita Petschnig said the projection the research institute gave for 2011 GDP growth in the latest Reuters poll was 2.0%. In light of the fresh data, it has bumped down the forecast to 1.7%, she said and put 2012 GDP growth at 1-1.5%.Hungary's lower-than-expected second quarter GDP growth does not put the government's 2011 deficit target at risk, the National Economy Ministry said on its website late Tuesday. "The stability fund was created with precisely such a contingency in mind, thus the almost HUF 90 billion negative effect can be securely financed," the ministry said. "The government continues to be committed to reducing state debt and restoring the fiscal balance," it added. The ministry said GDP estimates for the second quarter caused negative surprise in countries across Europe as most showed a significant slowdown from the previous quarter. Lower-than-expected growth in Hungary was first of all the result of external factors, it added. "Although home constructions continue to show an unfavorable picture, developments financed with European Union resources will positively affect investment trends, as will recently launched investments," the ministry said, citing big projects in Hungary by the carmakers Daimler, Audi and GM as well as tire maker Hankook.Meanwhile Reuters reported on Tuesday, citing a top official at the National Economy Ministry that Hungary's government will reassess its macroeconomic forecasts in September, after a second reading of Q2 GDP data is published, "New macro forecasts will be linked to the (2012) draft budget and that may include changes (in the forecasts)," state secretary András Kármán told Reuters. "Certainly tax revenue forecasts must be based on this reassessed macroeconomic course," he said.Source: Portfolio.hu; MTI

Last Updated on Friday, 30 August 2013 09:11

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