In Q1 2014, Hungary’s GDP increased by 3.5 percent year-on-year. Quarter-on-quarter, the economy expanded by 1.1 percent. In international comparison, Hungary’s quarter-on-quarter growth was – along with Poland’s – the highest within the European Union. Final data are in line with preliminary statistics.
As a result of the positive U-turn observed in the second half of 2013, the structure of Hungarian growth has been becoming more balanced and sound. The fact that besides net exports growth is being underpinned by an increase in domestic demand is indicating a sustainable growth path. Almost each and every component on the production and consumption sides has contributed to the acceleration of economic expansion. In addition to these, external and internal indicators have also improved: foreign trade has been posting massive surpluses and the state budget deficit will stay low also in 2014.
As far as economic divisions are concerned, productive sectors continued to be the drivers of growth: added value was significantly higher within the industrial and the construction sectors. Higher industrial sector output has been the result of several factors: car industry capacity expansion and the revival of domestic and external demand. The upturn of construction sector output has been the consequence of larger EU funding as well as development projects of the Government and the private sector. As of the second half of 2013, improving domestic demand and the services sector have also been boosting growth. Higher consumption has substantially contributed to the better performance of retail divisions. Favourable tourism data have spurred the catering industry, while better industrial output fuelled the transportation sector.
On the demand side, the increase of foreign trade volume has been attributable to rebounding external demand and the outstanding performance of the industrial sector in general and the vehicle manufacturing division in particular. It is a positive development that the effect of stronger domestic demand on imports has been offset by a jump in exports.
As economic growth has been bolstered by rebounding consumption and investment, it is signalling that domestic demand is now based on two firm pillars. More than one factor has been behind the rapid upturn of investment, such as: pick-up in private sector output, accelerated utilization of EU funding, favourable growth outlook, a jump in new home construction, low yields on savings, the Funding for Growth Scheme and improving business conditions.
As another positive sign, investment growth has been balanced: fixed capital formation within the private sector was up markedly, while dynamic growth was observed in the manufacturing sector, the transportation, storage, electricity, gas and electricity, gas and steam supply, information and communication sectors, as well as in the field of construction sector and machinery purchases.
Rapid investment growth will underpin economic expansion also in the long term. The increase in household consumption has also been a major factor with regard to growth, which had also been lifted by the improvement of employment, wage rises, the series of utility price cuts and better consumer sentiment.
The rebounding economy is also having a positive impact on the labour market, as the number of those in employment continued to increase, recording a growth of 260 thousand over the past one year. The private sector has been increasingly behind the favourable labour market processes. The expansion of the economy is causing wages to rise steadily which, in turn, will boost household spending in the future. These processes as a whole also have a positive effect on state budget revenues.
First quarter data also confirming that the Hungarian economy has been placed on a sound and sustainable growth path. In light of better-than-expected first quarter data, Hungarian economic growth in 2014 may exceed by 0.3-0.6 percentage points the 2.3 percent GDP growth figure prognosticated by the Convergence Programme. These optimistic expectations are based on the stock of orders data within the industrial and the construction sector, the steady high indices concerning consumer and business confidence as well as the upturn in investment activity.
(Ministry for National Economy)