Eat your heart out, Europe

The series of pleasing macroeconomic numbers has not come to an end yet: the growth indicator neared 4% again in the summer. Since such results have not been recorded in Hungary since 2006, the
general optimism is likely to spread.

It is especially so because the European Union does not seem to be tuned for growth in these difficult times. According to the estimate calculated by the Central Statistical Office (KSH), the Hungarians produced 3.9% growth in the second quarter, which is the best result in the last eight years.
The result is still plus 3.7% when seasonally adjusted and taking into account the effect of the number of working days in the quarter, showing it to be matched only by the Latvians, Lithuanians, Polish and British. Anyway, if the economy of Great Britain is increasing by 3.1%, the distance of development from the Hungarian economy is fortunately still growing.
However, in the case of Germany and Austria there is still hope, since the former is only growing by 1.3% and the latter by 0.9%. This means that Hungary has three or four times more dynamic growth, which is a good reason to be making bold plans.

Slight decline in quarterly growth

KSH announced in mid-August that Hungarian Gross Domestic Product grew 3.9% in the second quarter year-on-year; and in the first half-year the total growth was 3.7%. The overall positive tone of the estimate is somewhat compromised by the fact that the increase compared to the first quarter of 2014 reduced to only 0.8%, while earlier the quarterly growth was 1.1% twice in a row.
The steady, unbroken growth in economic output cannot be questioned. KSH will publish the detailed data in the following weeks, and until that time we will try to interpret the present estimate ourselves.
The positive results have caused the Ministry of National Economy to raise the growth prognosis for the present year to 3.1%. During the convergence program in April the government estimated only a much more cautious 2.3%.
Minister of National Economy Mihály Varga has emphasised that Hungary was already one of the European countries with the highest growth dynamic in the first quarter, and in the second quarter the country has even clearly earned the top position. What is even more important is that the structure of growth looks much more balanced and healthy.
The growing incomes will finally increase private consumption as well. Varga says the improving consumer behaviour, growing number of construction permits and full company schedules are the reasons for the positive conjuncture estimations for the rest of the year, because these factors are responsible for improving the business climate and the willingness to invest.

Uncertainty due to Russian-Ukrainian conflict

During his assessment, Minister Varga did not omit the risks. He mentioned the imminent solution to the foreign-currency loans (which are supposed to be converted to forint-based loans to reduce the burden on borrowers) as a positive risk factor that should have a beneficial effect on private consumption, especially in 2015.
The negative impact of the Russian-Ukrainian conflict still cannot be assessed. It is clear, however, that any escalation of the crisis would be harmful for all Europe. Hungarian exporters are already beginning to feel the effects of the sanctions and Moscow’s answer to them. For these reasons the Ministry of National Economy will not change the economic growth estimate for 2015, which remains at 2.5%.
According to the largely unanimous judgement of the analysts, Hungary’s economy will suffer much more from the conflict in the neighbourhood. Although most of them were surprised by the economic growth of almost 4% announced by KSH, they are now estimating total annual national GDP growth of over 3%. However, not everyone is sharing the optimism.

Automotive industry full of optimism

The automotive industry is working on the sunny side, a picture of enthusiasm that could carry the whole Hungarian economy on its shoulders with its optimism. Audi, Mercedes and the rest grew by about one quarter in the first half of the year; and this is not even counting the third phase in Kecskemét and Győr and the ongoing duplication of engine production capacity of Opel in Szentgotthárd.
The huge capacity expansions are also characteristic at numerous suppliers of the automotive industry, just like in the rubber and chemical industry as well.
The total industrial production increased by 11%. The construction industry doubled that pace, although it was largely supported by state investments in the infrastructure of stadiums. Agriculture might have another good harvest after the positive results of the last year, thereby strengthening the positive statistics.
The service sector is also a positive surprise – even without having the detailed data the ministry expects an increase in the sector, which is being treated which such neglect from the government side.
If the commercial banks are not giving away loans, there is another solution: The Hungarian National Bank has recorded about HUF 300 billion so far in its credit program for investments in corporate growth. The EU grants, which have been wholeheartedly pursued by the government, pumped another HUF 150 billion into the economy – on a monthly basis!
In the summer this source seemed to be waning but after four months of thirst there were again some reports of successes from the ministries in August. This money stream of HUF 1,000-1,200 billion per year will eventually dry up, even if the payments for the budget cycle of 2007-13 can still be made officially until the end of next year. However, before that happens, we can surely enjoy the positive statistics about Hungarian growth.