In Q1 2015, Hungary’s GDP was 3.4 percent higher compared to the same period of the previous year, while it was up by 0.6 percent quarter-on-quarter.

This GDP growth figure is largely in line with prior market expectations. Since the positive trend reversal in 2013, economic expansion – observed for the eighth consecutive quarter – has become steady and sustainable in the long term. Almost every economic branch and sector has profited from the rebound, and balance indicators have also improved.

On the production side, the industrial sector showed marked expansion, fuelled mainly by further growth at the vehicle manufacturing sub sector. Construction sector output was also higher despite the high base, underpinned by SME loan schemes and EU funding. Within the services sector, output volumes at the tourism and retail sectors were stronger in the first quarter, reflecting domestic demand growth that is expected to pick up further. On the expenditure side, GDP growth was driven higher by the revival of investments and household consumption. The volume of exports continued to increase, propelled – among others – by car industry demand on foreign markets.

As growth has not been accompanied by higher debt levels and internal and external balance indicators have improved signals that expansion has been based on a sound and even growth structure.  In the first quarter, Hungary’s foreign trade posted a surplus of more than EUR 500 million, up sharply from the outstandingly high base of the previous year. Thanks to that, the country’ external financing capacity is expected to exceed 9 percent of GDP for the whole year of 2015. Besides the improvement of the external balance, internal balance indicators have also improved: general government deficit is forecast to fall from 2.6 percent of GDP last year to 2.4 percent this year. This trend will enable a faster-than-expected decline in the general government debt-to-GDP ratio, thus reducing the country’s economic vulnerability.

Favourable labour market trends continued. The number of people in employment was up by 80 thousand in the first quarter, thanks mainly to private sector job growth. Wages in real terms also rose dynamically and that in turn has underpinned domestic demand growth.

The Government is expecting GDP growth to remain steady in the coming quarters, thus full-year GDP growth is estimated to exceed 3 percent, in line with the prediction of the Convergence Programme.

The Government expects that favourable external demand trends, improving confidence, subdued inflation and improving labour market conditions will in the future sustain growth. Data for the time being do not show significant effects of potential risk factors outlined in the Convergence Programme, such as geopolitical tensions and the resurfacing of the eurozone debt crisis.

(Ministry for National Economy)