Very poor GDP data for Q1

HUNGARY - In Brief 13 May 2016 by Istvan Racz

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The first estimate of Q1 GDP was a very bad surprise this morning, with -0.8% qoq, +0.5% yoy on sda basis. This went against a +2.3-2.4% yoy analyst consensus on Reuters and Bloomberg, and +2% yoy in Portfolio.hu's domestic poll. The Q1 data followed +1% qoq, 3% yoy in Q4 2015. All this seems to suggest that analysts got it utterly wrong. But to be fair, analysts did not know about the 34% yoy collapse of construction industry output in March, which was also published only this morning, and they only knew very little about services and agriculture. In brief, construction did very badly, down by about one quarter from Q1 2015 in gross output terms, on what we usually refer to as the EU transfer shock, i.e. that EU-backed activity was close to none within the construction sector in Q1. In addition, industrial output also fell in Q1, mainly due to decreasing car industry output. This part of the growth story was completely unexpected, and at this moment, it seems unclear exactly why it happened. (Major car factories remain remarkably silent on the issue, whereas competing stories from analysts include explanations like a temporary setback due to model changes, a slowdown of global sales by Audi-Volkswagen, etc.) On other sectors, we still know little factual as the breakdown of supply and demand will be published only later. As regards the immediate consequences, it is needless to say that the MNB's 2.5% GDP growth forecast for this year has suffered a major hit. Following this morning's numbers, another 15 bps base/O/N rate cut on May 24 is almost granted, and a further 10 bps cut in late June is also quite possible. With core inflation at 1.4% yoy in April, price stabil...