Some really impressive data released this morning: Q2 GDP, fiscal deficit, government debt ratio

HUNGARY - In Brief 17 Aug 2021 by Istvan Racz

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Good news on good news, seriously.In first estimate, GDP grew by 2.7% mom, 17.7% yoy in Q2. So far, the best number to have was +13.7% yoy, as predicted by the Finance Ministry, on the basis of their leading indicator, the Weekly Economic Index. Analysts, and their surveyors, now remember that they expected only slightly weaker GDP than the actual. Indeed they did, since about a few days ago, when optimism suddenly shot up among them greatly. But more importantly, Q2 GDP exceeded its pre-Covid value of Q2 2019 by 2.2%, meaning it is now largely out of the Covid crisis. In itself, this Q2 performance should be sufficient to raise the annual GDP growth rate to around 6.5%.In addition, the government sector's net financing requirement was reported at HUF1062bn or 4.3% of GDP for H1. This is much smaller than the 7.5% of GDP annual deficit target. As a reality check, we can confirm that this deficit ratio is exactly the same as the central government's H1 cash deficit adjusted for the EU reimbursement gap, which we use as a proxy for the main fiscal deficit ratio. The exact match is a coincidence, of course, but it is a good sign from the point of view of data consistency, if these two indicators are reasonably close to each other. On the reasons behind this improvement: fiscal spending was normalised in H1 this year, as much of last year's extraordinary spending on health care and on helping out the economy was not repeated. In addition, this year's budget was based on 8.2% yoy nominal GDP growth, with a base-year GDP number that was 1.2% below the actual. Now it is clear that actual income growth is very substantially higher than this projection, which has a positive imp...