Country Economic Forecasts > Hungary

The flash quarterly GDP estimate for Hungary in Q1 showed the worst performance among the 20 EU economies for which data were available. Seasonally adjusted GDP fell by 0.8% on the quarter and grew just 0.5% in annual terms, Hungary's worst performance since 2012.Slower industrial activity, especially construction, and lower automotive output were the main factors behind the decline. Indeed, construction contracted by over 20% on the quarter and by about a third on a year earlier as EU funding from the 2007-13 cycle dried up. Industrial production shrank by 2.2% on the quarter, the sharpest drop since Q4 2012, largely due to the 8.2% contraction in export-oriented automotive sector, which accounts for 30% of industrial output. This suggests that both net exports and investment may have been a drag on growth in Q1.Part of the slowdown was due to temporary effects, and growth should accelerate in H2 this year as disbursement of EU funds picks up again, as the car sector recovers from the temporary slump and consumption accelerates as fiscal policy turns expansionary again. Nevertheless, the weakness in Q1 will take its toll on the annual numbers, and we now see 2016 growth at only 1.4%, assuming the Q1 GDP result is confirmed, almost 1% point below our forecast of 2.3% last month.