In Q4 2014, the Hungarian economy grew by 3.4 percent year-on-year and by 0.9 percent quarter-on-quarter. This dynamic growth came in well above prior market expectations of 2.8 percent. Full-year growth in 2014 was as much as 3.5 percent and thus economic output has already reached pre-crisis levels.
In light of favourable fourth quarter data, the outlook for this year has also improved: Hungary’s economic expansion may exceed the official estimate of 2.5 percent projected by the Ministry for National Economy (NGM) in autumn 2014.
In the fourth quarter, contrary to predictions, Hungarian economic growth did not decelerate. Several factors are believed to be behind the GDP growth figure that has significantly beaten expectations. The crude oil price slump has definitely contributed to a large extent to domestic consumption growth: extra savings at households and enterprises have driven consumption and investment.
The impressive expansion that belies persistently sluggish demand on external markets indicates that the Hungarian economy has become increasingly resistant to the effects of economic cycles within the EU. However, it must be noted that car industry demand remained stable also at the end of last year. Within the EU, Hungary’s growth rate will almost certainly remain one of the highest this year.
In 2013, the Hungarian economy saw a shift towards a sounder, more balanced and sustainable growth structure. Over the past quarters, this positive trend has strengthened. Data published today confirm that Hungary has been on the right path. Almost every sector shows dynamic growth. The country has achieved above 3 percent growth while fiscal indicators also improved. On the one hand, the current account posted a massive surplus last year and the central government debt remained well below 3 percent on the other. The latest, remarkable growth data will further reduce the country’s debt.
In addition, steady economic expansion has been coupled with sizeable improvement in employment. The number of people in employment increased by more than 170 thousand in 2014 and the private sector has been a major factor behind this increase.
As far as GDP composition is concerned, productive sectors continued to be the driving forces of expansion. Although detailed GDP data will only be published in May by the Hungarian Central Statistical Office (KSH), in light of monthly statistics from individual sectors the volume of industrial output is forecast to have increased by about 6 percent in Q4 2014, thanks to capacity expansion at the car industry and related suppliers. As a result partly of infrastructural development projects, construction sector growth could be as high as 7 percent.
Despite a high basis, output volume growth was remarkable within the plant production and animal husbandry sub sectors and thus the agricultural sector is also thought to be a large contributing factor to Hungary’s economic performance. Within the services sector, the tourism and retail sub sectors showed outstanding result at the end of last year and that signals that domestic demand growth is accelerating. Added value at the financial sector is also believed to be higher, thanks to Government measures aimed to create a sounder bank sector.
The NGM predicts that GDP growth has been driven by higher domestic demand and investment. The key factors boosting investment were construction sector rebound, better utilization of EU funding, low interest rates and the general recovery of the private sector. Household consumption was fuelled by lower prices, higher wages in real terms due to favourable labour market trends and the outstanding performance of certain services sectors. Muted inflation was the consequence of the steep fall in oil prices and the Government-mandated public utility price cuts.
In spite of weak external demand, exports remained strong at the end of last year. However, due to the larger volume of imports generated by improving domestic demand, overall trade balance had a slightly negative effect on GDP in the fourth quarter.
In view of these data it can be concluded that economic outlook for 2015 has improved substantially and economic growth is likely to exceed the 2.5 percent growth figure projected by this year’s budget. Several elements confirm brighter expectations. Domestic economic determinants are set to remain stable or even improve. Positive labour market trends are expected to prevail and thus employment will increase.
The income position of households is set to improve further, bolstered by public sector wage hikes, low fuel prices and the implementation of the forex borrower relief programme. In addition to these it has to be stressed that financial market environment is becoming more stable and predictable and the bank system is becoming sounder that strengthens consumer confidence and reduces Hungary’s vulnerability.
Moreover, along with consumption investment is also expected to pick up on the back of EU fund inflows and higher production capacities driven by the Funding for Growth Scheme. Accordingly, investment rate is seen to stay above 21 percent. Finally, favourable confidence indices and export order growth will uphold positive trends. Encouraging signs of stabilization in the Russian-Ukrainian conflict also point to economic advancement.
(Ministry for National Economy)
