Hungarian Third Quarter Growth

Well year-on-year growth is slowing slightly, but hardly exceptionally so. This is neither surprising nor exceptional, but it is the first piece of hard data. The important question is still what happens next, as interest rates and the government 'correction' programme start to bite.

Hungary's gross domestic product grew by 3.6% year on year in the third quarter of 2006, according to first estimate figures released by the Central Statistics Office (KSH) on Tuesday. In Q2 the country's economy grew by 3.8% in annual terms.

The Budapest Business Journal have some useful background data:

„It can only turn worse in terms of growth,” said Lars Christensen, an analyst at Danske Bank S/A in Copenhagen. „Either the government moves ahead with the reforms that would implement a significantly tighter fiscal policy that would mean a slowdown in domestic growth. And if they don't, then we will have financial turmoil that will have the same impact.” Gyurcsány pledged to narrow the budget shortfall in the face of threats that the EU would cut off aid. Monetary Affairs Commissioner Joaquin Almunia on October 10 issued a final warning to the government to comply with the bloc's fiscal regulations. The EU's procedures for halting aid are in place and the commission „can't ignore” that possibility, should Hungary fail to deliver on its budget plans, Almunia said during a visit to Hungary on November 8. At stake is €8 billion ($10.3 billion) for motorways, railroads, schools and hospitals.....

The country now relies on exports from the local units of foreign companies and domestic manufacturers such as drugmaker Gedeon Richter Nyrt and plastics manufacturer BorsodChem Nyrt to drive economic growth. Their output helped keep growth rates above the EU average while consumer demand fell, analysts said. „Net exports were the main driver of growth, even stronger than in the Q2,” said Pugacewicz-Kowalska. Industrial production was an average 10.9% higher in the Q3 than in the same period last year, accelerating from 8.7% in the Q2. Taxes also rose for consumers, including an increase in the value-added tax rate that sapped disposable incomes. Spending power was further weakened when the government raised the price of products such as electricity, natural gas and medicines. Consumer confidence fell to minus 51.1 in September, the second-lowest level on record, surpassed only by a minus 51.5 mark in June 1996 that followed an austerity package.