World Economy

Hungary Growth Outlook Worsens

Output in Hungary fell 0.6%.Output in Hungary fell 0.6%.

The Hungarian economic growth is expected to struggle to attain even the sub-consensus projection of 2.2% growth in 2016, said Commerzbank in a research note.

The economic growth was up by less than 1%, annualized, in the first half of this year. The country released quite a weak manufacturing data for July, where output declined 0.6% in sequential terms after the 2.4% month-on-month decline in June, AAP reported.

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 behavior. In the first half of 2016, fixed investment saw a sharp decline of 15% 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 Central and Eastern Europe unexpectedly declined. Output in Hungary fell 0.6%, whereas in Czech, output declined greatly by 9.7% 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.

  Fresh Monetary Easing

“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 report, the Hungarian economic growth is likely to grow 1.6% this year and 2.5% 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% 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.

Meanwhile, Eurostat, the statistical office of the EU, published on Tuesday its second estimate GDP figures for Q2 for every member state, except Ireland, Malta and Luxembourg. Compared to Q1, Hungary’s growth was enough for the second place and only Romania’s 1.5% q/q GDP growth was larger than what Hungary produced.

In quarterly terms, France, Italy and Finland stagnated, but Austria cannot be really proud of its 0.1% growth, either.