HU: Domestic demand remained two-faced in Q2

Today the HCSO published the details of GDP for the second quarter. As a reminder 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. In the first half of 2024, the performance of the economy was 1.3% higher according to raw data than in the same period of the previous year.

Regarding the details industry were a well-known negative contributor to the growth due the moderate demand for vehicles, especially for EVs. Besides agriculture decreased by 5.2% y/y which resulted in a -0.2-percentage points contribution. Furthermore, compared to our forecast some branches showed performance below the expectations such as tourism and info communication services.

Respect to the expenditure side investments caused a huge negative surprise: gross fixed capital formation fell by 15.4% y/y. Households consumption proved to be resilient again and net exports were also a significant positive contributor.

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. The overall hazy economic outlook (mainly for the largest trading partner, Germany) could become a medium-term challenge. Nevertheless, there is still no sign of actual revival of EV sales which could be a massive burden of growth figures. Our recent forecast is 2.0% for FY 2024 and 3.5% for 2025, however both parties are facing downward revisions.