Detailed Q1 GDP affirms preliminary data, reflects improvement but also an unhealthy structure

HUNGARY - In Brief 04 Jun 2024 by Istvan Racz

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This morning's detailed KSH data on Q1 GDP affirmed the preliminary 0.8% qoq, 1.7% yoy growth, a marked improvement from Q4 2023's 0% qoq, 0.5% yoy figures (all on sda basis): Further reasonably good news is the 0.6% qoq, 3.4% yoy expansion measured for household consumption, especially after all the recent official complaints about the stubborn weakness of consumer demand. Here, one thing that reduces the positivity of these numbers may be that in fact, household consumption was already growing by 0.7-1.1% qoq in each of the previous three quarters. The latter has not been sufficiently appreciated by analysts and politicians so far, because of the general strong focus on year-on-year changes, which were quite poor because of earlier setbacks, and also because of a strong focus on retail sales data, which (in Hungary) includes predominantly goods but notoriously neglects services, a feature quite rarely taken into account. One piece of bad news though is the weakness of investment. In Q1, fixed investment fell by 7.2% yoy, reflecting mainly sharp cutbacks of spending in the government sector, not least as EU funds are not coming as planned, the continued slump (despite a bit of initial recovery) of the housing sector, and also the negative impact of high interest rates on business investments. Total investment, including inventory accumulation, actually fell by 21.2% yoy (!). All this is not sustainable, of course. But it was good news for the BOP, the recent strength of which is very much based on the serious weakness of imports. In Q1, the imports of goods and services dropped by 9.3% yoy in volume terms, made possible in a great part by nosediving investment. Where ...