Q3 GDP: moving into recession but not so much as we have thought

HUNGARY - In Brief 15 Nov 2022 by Istvan Racz

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GDP shrank by 0.4% qoq but grew by 4.1% yoy, by seasonally adjusted data, in Q3. This means that economy minister Nagy, who indicated a similar number a week ago, was right, whereas the MNB's so far quite reliable-looking WEAI index, on which we based our Q3 forecast, was dead wrong. The WEAI, presented by MNB vice governor Virág in his end-September lecture, predicted only zero percent year-on-year growth for Q3, obviously very far from the preliminary actual that KSH reported this morning. The immediate consequence of this is that the average real GDP growth rate for this year may end up around 4.5-5% rather than the 2.3% we predicted in our October forecast. But perhaps more importantly, the newly reported actuals suggest that the economy is indeed moving into recession, in the wake of the ongoing forceful fiscal adjustment and monetary policy tightening, combined with a weather-related poor agricultural year. From here onwards, we maintain our quarter-on-quarter forecast trajectory, with 2% decrease in Q4 and a further 1% decrease in Q1, followed by a strengthening in H2 2023, so that in Q4 next year, real GDP would be 4% higher than in the last quarter of this year. However, the resulting annual growth rate for 2023 is now likely to be -1.5% to -2%, rather than the -3.3% number included in our October forecast. Regarding policy, we do not think that the Q3 GDP actuals will lead to any change in central bank policy. The MNB must have suspected for a while that its WEAI leading indicator may be misleading this time - anyway, Mr. Virág dropped the index from his late-October presentation already. More importantly, MNB rate-setting is heavily focussed on the managemen...