HU: Structure of 1Q GDP showed further dropping investments

The CSO published the structure of the 1Q25 GDP figures this morning. In line with the flash estimate, the economy dropped by 0.2% q/q in the first quarter. On a yearly level, the GDP stagnated according to the raw figures and was 0.4% lower according to seasonally and calendar-adjusted and reconciled data.

On the final use side, households final consumption remained the main growth driver, rising by 4.1% y/y in 1Q25. On the other hand, investments remained significant drags on growth, plummeting by 10.1% y/y. Meanwhile, as a result of weak external demand, external trade activity remained sluggish. Exports declined by 0.4% y/y, with imports rising by a marginal 0.1% y/y. The contribution of net exports to GDP was slightly negative, at -0.3 percentage points.

Regarding the production side, it was not surprising that industry was the most relevant negative contributor, dropping by 3.9% y/y. Construction was also a negative contributor, while the role of agriculture was neutral to GDP in the period. Services rose by 1.1% y/y and contributed to GDP with 0.7 percentage points at the beginning of the year.

We already reduced our 2025 FY annual GDP growth forecasts to 0.8% after the release of the flash estimate of 1Q25 figures. However, risks are still tilted to the downside, as high frequency indicators for the second quarter have not shown any sign of a revival so far. The overall outlook is still burdened by significant uncertainties caused by US tariff issues and ongoing geopolitical tensions. As a result of the still weak state of the external environment, industrial exports could remain rather subdued. In addition, weak external demand coupled with low business sentiment suggests continued subdued investment activity.

A positive factor, however, is that the labor market preserved its relative resilience, while real wages remain in positive territory. Thus, household consumption may be the main growth driver in 2025. In 2026, primarily the expected recovery in the European economy based on German fiscal plans and pre-election fiscal easing could support some acceleration of growth.