In Q1 2016, the output of the Hungarian economy grew by 0.9 percent year-on-year, according to preliminary data compiled by the Hungarian Central Statistical Office (KSH). Modest growth at the beginning of the year has been the consequence of the cyclicality of EU fund inflows and lower output at motor vehicle manufacturers. In the entire year, GDP growth is expected to pick up substantially, thanks to economic fundamentals and Government measures. The soaring number of building permits also signals a positive trend.

Slowing expansion was mainly the consequence of the schedule of EU funding, and a telling example of this is lower construction sector output. Besides the cyclicality of EU transfers, other factors were also behind subdued GDP data in the first quarter. Among productive sectors, output at the industrial sector has slightly dampened the pace of GDP growth, due to production breaks in winter and a high basis effect.

As of the second half of 2016, GDP growth is expected to pick up, partly in light of housing permit growth. Favourable processes are also being underpinned by Government measures. It has to be noted that Hungary’s economic growth has not been fuelled by loans. Steadily improving employment trends and subdued oil prices are seen to drive domestic consumption in the coming quarters. In the previous quarter, the number of economically active people grew by 150 thousand year-on-year. In coming quarters, the pace of disbursement of EU funds and bank lending are also expected to accelerate.

Finally, Government measures are boosting domestic consumption, such as the Family Housing Allowance (CSOK) and the preferential VAT rate of 5 percent on the sale of new residential properties, which are anticipated to revitalize the housing market. The Government is expecting the number of new housing units to increase to 13 thousand this year.

(Ministry for National Economy)