Surprisingly poor GDP data for Q2

HUNGARY - In Brief 30 Jul 2024 by Istvan Racz

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Preliminary real GDP growth was -0.2% qoq, +1.3% yoy in Q2 on seasonally and calendar-adjusted basis, with the unadjusted yoy figure reported at +1.5%. The median expectation of analysts in Portfolio.hu's poll was +0.5% qoq, +2.3% yoy, seasonally adjusted. In our view, analysts were a bit too optimistic in this case, in the light of the known fact that industry did not do well in Q2, especially in the broadly defined car manufacturing sector (including battery production). About a week ago, the economy minister said in public that previous expectations of further positive growth in Q2 may not be met by actuals exactly for this reason. But honestly, we also predicted 0.1% qoq, 1.8% yoy positive growth, and even this more modest forecast proved to be too optimistic. In this light, our 2.1% forecast for GDP growth in the whole of 2024 will have to be scaled back most probably, to somewhere in the 1.5-2% range, as there is no such outlook that the situation in industry will improve very soon. These GDP figures appear to suggest that the one or two 25bps base rate cuts in the rest of this year, the prospect for which was indicated by the MNB a few days ago, is more likely to be two rather than just one. Of these, we would expect one to come in September and another one at some point in Q4, possibly in November. As for the next rate-setting meeting in August, we do not expect a rate reduction, as that will follow the July inflation figures, for which the MNB expects increases both for the core rate and the headline rate, and within that a significant increase in the core rate. For sure, weaker than expected growth is no good news for fiscal policy. The amended budget for 202...