HU: The economy shrank in the second quarter

Todays flash GDP figures for 2Q24 came as a huge negative surprise. Compared to the previous quarter, the economy shrank by 0.2% that proved much lower than our estimate of 0.6% increase and the similar consensus. The yearly GDP growth came at 1.5%. According to seasonally and calendar adjusted and reconciled data, the y/y increase was 1.3%, reflecting the working day-effect.

The breakdown of the GDP figure will be released on only Sept 3. The Statistical Office says that the main contributors to the increase in the economic performance were construction and real estate activities, as well as the balance of product taxes and subsidies. The economic growth was lowered by a decrease in the value added of industry, representing a large weight in the economy as a whole. These are more or less accountable details, there is nothing new in it. The most possible explanation behind the unfavorable figures could be a general weak performance of several service sectors which were flagships of the previous periods.

After the first quarters rebound the setback in Q2 was unexpected, particularly as the Eurozone could book at least a slight growth. Looking ahead moderate inflation figures and continued normalization of interest rate environment could play an important role in short-term improvement. Sometimes double-digit real wage growth should also back the consumption. On the other hand, the ongoing subdued performance of industry shows still weak state of Hungarys main export markets. There is still no sign of actual revival of EV sales which could be a massive burden of growth figures. Despite the shocking Q2 data, our (so far pessimistic) FY forecast of 2% could in line with the overall progress.