Hungary’s third-quarter GDP grew 0.7% on a quarterly basis and 6.1% in annual terms, decelerating by 2.7% and 17.8% in the second quarter respectively, the Bureau of Statistics reported. KSH statistics, confirming the preliminary data in second reading on December 1. Both figures were well below estimates. Detailed data revealed weaknesses in the structure of growth, which analysts say pose risks for the year ahead.
The slowdown in the third quarter was clearly caused by the downturn in the manufacturing sectors. Production in industry (-2.7% q/q), agriculture (-4.8%) and construction (-0.3%) lagged behind its quarterly performance previous. While industry was the sector that recovered the fastest from the crisis, its added value has now returned to below pre-crisis levels. Hungary’s export-oriented automotive and electronics sectors have been hit by supply chain issues that have led to reduced operations.
Net exports were a significant drag on the economy as rising domestic demand pushed imports up (+1.2%), while global value chain constraints translated into lower export activity (-0.8%).
On the production side, the service sector has become the engine of growth, boosted by pent-up demand after the pandemic and helped by the early lifting of restrictions in Hungary. The value added of services increased by 2.2% on a quarterly basis, much better than in the previous quarter.
On an annual basis, services added 3.8 pp to overall third quarter growth, construction 1.0 percentage point and industry half a percentage point. Manufacturing output – likely hit by supply chain disruptions – rose just 2.5% over the period, while services output rose 6.8% and that of construction by 20.1%.
Within services, production in the merchant accommodation and catering segment increased by 21.6%. On the expenditure side, final consumption contributed 3.3 pp to growth, while gross capital formation added 6.0 pp.
On the expenditure side, household consumption increased by 0.7% and public consumption by 2.6%. Gross fixed capital formation increased by 1.3%.
KSH noted that unadjusted GDP was 1.5% higher than in the third quarter of 2019, before the pandemic began. for the Q1-Q3 period, Hungary’s GDP grew by 7.1% year-on-year.
After the preliminary reading, Takarekbank lowered its growth forecast for 2021 from 8% to 7% and its outlook for next year from 7% to 6.4. The Ministry of Finance also reduced its target from 7-7.5% to 6.8%, citing the rapid spread of the Delta variant, the energy crisis and supply problems in the industry.
Downside risks to 2022 growth abound. The dampening effect of monetary policy tightening, prolonged supply shocks and the emergence of the new variant also pose serious risks, analysts said. The services sector, which has been the engine of growth, would suffer a severe blow if containment measures against COVID-19 were introduced. On the upside, significant fiscal stimulus should support domestic consumption. ING Bank maintained its GDP growth forecast of 5% for 2022, but said that appeared to be an optimistic forecast, as economic output could be much worse if downside risks materialized.