Country Economic Forecasts > Hungary

Despite a generally favourable macroeconomic background, GDP growth in Q2 lost momentum slightly, rising 0.5% q/q and 2.5% y/y, down from 3.2% y/y in Q1. High frequency indicators have also been disappointing and as a result we have revised down our growth forecast for this year to 2.6% from 3% before. Weaker external demand has been a key driver of the slowdown, contributing only 1.8% points to Q2 growth, down from 3.8% in Q1, but domestic demand has continued to strengthen. Meanwhile, Hungary has been at the forefront of the refugee crisis engulfing Europe, being situated along a major transit route to Germany. The tightening of border controls with the rest of the Schengen area, even if temporary, will put pressure on Hungarys automotive sector, which is heavily integrated into German supply chains and relies on a just-in-time manufacturing process; this could lead to a further downgrade to our growth forecast. On a more positive note, Central and Eastern European economies have so far successfully weathered the Greek crisis and proved resilient to the slowdown in China, and as such, Hungary is an early candidate for an outlook upgrade by rating agencies in the coming months.