Q2 GDP data is not quite as poor as it looks at first glance

HUNGARY - In Brief 03 Sep 2024 by Istvan Racz

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Detailed GDP data for Q2 2024 is out today. The preliminary report of -0.2% qoq, 1.3% yoy growth (or the lack of it) has not changed. So clearly, the recovery seen in Q1 did not continue, which has proven to be a reason for a great deal of disappointment within the government and also in the private sector. Similarly, there is nothing positive about the continued downtrend of industry, which is mainly due to the problems of car manufacturing, including the production of electric batteries. Real GDP growth But even so, we would like to point out a few details which might make the picture look a bit less dramatic than it is often suggested. For one thing, GDP actually stagnated rather than fell in Q2 on an ex-agriculture basis. Agricultural value-added is falling this year, which is fundamentally weather-related rather than policy-driven. In 2023, we had a warm and humid year after a nightmarish 2022, resulting in very high growth figures in agriculture, but this year has been extremely hot and increasingly dry so far, which is a problem. No good news but a good explanation. For another one, consumption growth is not quite as bad as a number of commentators have suggested so far. Purchased consumption (as opposed to consumption out of social benefits) actually grew by 4.1% yoy in Q2. Regarding the demand side of GDP, growth was held back by a 13.3% yoy drop by fixed investment expenditure, which had to do with the closely linked occurrence of forceful fiscal adjustment and the drying up of EU development transfers. As for the latter, there are two problems this year: (a) the non-availability of RRF funds for Hungary (due to the well-known rule-of-law problems), and the t...