Q2 GDP growth slightly above expectation, currency market remains unimpressed

HUNGARY - In Brief 17 Aug 2022 by Istvan Racz

---

As reported this morning, GDP grew by 1.1% qoq, 6.5% yoy in Q2, down from 2.1% qoq, 8% yoy in Q1. This was slightly above the 6.1% yoy median expectation of Portfolio.hu's analyst poll, which obviously followed the MNB's indication in late July that its weekly activity indicator WEAI predicted 6% yoy growth for Q2. What is more important is the fact that the WEAI reflected sharp slowdown starting from June, so that its GDP growth prediction stood no higher than 1-1.5% yoy already around mid-July. This sharp slowdown was due to the aggressive adjustment taking place in fiscal policy, in view of the massive risks of rising energy prices and the potential loss of large amounts of EU funds next year. The negative tend of GDP growth is likely to continue, as higher retail energy prices have kicked in from July 30 (motor fuels) and August 1 (gas and electricity). H2 is most likely to see a recession, as a result. More on this will follow in our next monthly report, due early next week. The currency market apparently remains unimpressed with the new GDP data. The current serious European energy situation and the resulting strong USD appear to be much more important. The momentary EURHUF 407 trading level is significantly above the MNB's perceived short-term line of defence, and so the Bank might feel tempted to make a precautionary deposit rate hike at tomorrow's weekly tender.