Positive surprise in Q2 GDP

HUNGARY - In Brief 12 Aug 2016 by Istvan Racz

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GDP growth in Q2 2016 came out as 1.1% qoq, 1.7% yoy on sda basis, a remarkable recovery from a revised -0.7% qoq, 0.7% yoy in the previous quarter. We expected 0.5% qoq, and the analyst consensus was 0.6% qoq, so the actual data was for sure a big positive surprise. As usual, the statistical office (KSH) did not provide details of its first GDP estimate, but its communiqué briefly noted that the main contributors were non-government services, industry and agriculture, whereas construction was still a negative factor in Q2.Well, fair enough, industry was indeed somewhat stronger in Q2 and even construction grew a bit on qoq basis, despite a big drop in yoy terms, at least as regards the previously reported monthly gross output data. But this was already well known for analysts and was taken into account in their forecasts. What must have been the source of the positive surprise was services, which are quite lightly reported on a monthly basis, and agriculture, on which only anecdotal evidence exists most of the time between GDP reports. In our view, any marked surge in services growth must have been demand driven, meaning that consumer demand was actually stronger than that reflected by retail sales (which does not include services, of course), and that it was more in line with this year's unusually rapid wage growth. Regarding agriculture, a positive supply shock may happen at all times, mainly due to changing weather conditions - although there had not been any sign of anything like that in H1 this year, so it remains to be seen, where exactly this sudden strength of the agricultural sector actually came from.At present, there is no sign that faster than expected gro...