HU: We reduced this year’s GDP forecast to 0.5%
Given disappointing 3Q24 GDP figures, we have reduced our FY 2024 GDP growth forecast to 0.5% from 1.4%. Additionally, a much lower carry-over effect and uncertainties surrounding the prospects of the main export markets necessitated a downward revision of the GDP forecast for 2025 to 2% annually. Underlying processes are still weak; however, the initiation of substantial investment projects could stimulate activity, mainly in 2H 2025.
The 3Q24 GDP flash estimate came in at -0.7% q/q and -0.8% y/y. Details of the figures are not available yet, and the CSO will publish them in early December. According to preliminary information, industry, construction, and agriculture were the most significant negative contributors. Services probably contributed positively to the GDP; however, their performance was not strong enough to offset the setbacks in the production sectors. On the final use side, given still low business sentiment and weak corporate lending activity, investments might have continued the declining trend. On the other hand, households consumption probably remained a positive contributor to the economy in July-September.
Challenges related to the outlook of industrial exports do not seem to be resolved in the short term. Thus, we expect only a tiny quarterly growth for 4Q24, making the latest 1.4% forecast for the 2024 annual GDP growth unachievable. Therefore, even without knowing the exact breakdown of the 3Q24 statistics, we have reduced our forecast for the 2024 annual GDP growth to 0.5%.
As for next year, we see a gradual recovery from quarter to quarter. Underlying processes are still weak; however, some factors support the economy next year. On the back of wage increases, a rebound in consumption would continue. Additionally, fiscal policy should be more supportive than this year, as delayed state investments are set to take place in 2025. Among the main economic branches, agriculture could improve next year after this years poor performance. As for the industry, the start of production at the BYD, BMW, and Mercedes plants should improve prospects for industrial exports. However, this remains dependent on the overall state of Hungarys main export markets. As the statistical carry-over effect from this year is unsupportive, despite the expected gradual, quarter-to-quarter recovery, we see the annual GDP growth just at 2% in 2025. A faster-than-expected rebound of the German economy, however, could pose an upside risk to our forecast.