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Friday, September 05, 2008

Hungary Q2 2008 Detailed Results

Hungary's annual economic growth accelerated for the second consecutive quarter in Q2, largely as a result of a surge in agricultural outout which was up 33.8% year on year, and contributed about 50% of the quarter on quarter growth despite being a very small segment of the economy. Gross domestic product was up by an annual 2 percent, and this was the fastest rate since the first quarter of last year. The figure compares with a preliminary estimate of 2.2 percent made on Aug. 14 and 1.7 percent growth in the first three months of 2008.

Over the previous quarter GDP was up by 0.6%, equalling the performance in Q1 over Q4 2007.

Agricultural production rose an ``extraordinary'' 33.8 percent compared with Q2 2007, largely due to a bumper wheat harvest which was up 40 percent this year (to 5.6 million metric tons) following a very poor harvest in 2007 after frost and drought damaged the crop.

Industrial production was up only up 4.2 percent year on year, due to the slowing pace of export increase. IP had risen by 6.9 percent in the first quarter. Private Household consumption also showed some signs of life and rose 1.4 percent. This was the biggest leap in private household consumption since Q3 2006.

Indeed, quarter on quarter, household consumption was up 0.5%, which was the fastest quarterly rise since Q4 2005. Since this is really quite a surprising result it will be interesting now to see what happens as we move forward. On the other hand there is evidence that the stronger forint has been having an effect on exports. Indeed the annual growth in imports (at 11.2%) just exceeded the annual growth in exports (11.1%), hence the net impact of trade on GDP growth was marginally negative. The services and real estate sectors also slowed in Q2, with finance and real estate contracting by 0.3% quarter on quarter. Given that the rate of increase in new mortgage lending has now been slowing for some months, and new building permits are way down year on year, can we start to detect the first initial effects of the extending global credit crunch in Hungary at this point?

Investments as we have seen in a previous post were down year on year by 2.2%, while construction was down year on year by 6%. Given that the external environment in the Eurozone is now deteriorating, the industrial output (as we are also seeing for July today) is losing steam on the back of the high forint, I think we are more than likely going to see a steady reduction in the annual rate of growth as we move forward again, especially since one off factors like agriculture will not be so important, and can't be guaranteed to always show up just when you want them. My feeling is a final growth rate of 1.5% for whole year 2008 is not an unrealistic expectation at this point.

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