Weaker GDP, faster inflation, little surprise

HUNGARY - In Brief 14 Feb 2017 by Istvan Racz

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Two important pieces of data, Q4 GDP and January inflation came out this morning. In sum, GDP growth continued to decelerate and the preliminary Q4 number was moderately weaker than expected, whereas inflation rose markedly in yoy terms, predominantly driven by rising fuel prices, and it met exactly the market consensus figure. No great surprise on either side, and so none of these numbers should be a market mover. Our forecast, presented in our January report also remains unchanged.Specifically, GDP rose 0.4% qoq, 1.5% yoy on sda basis in Q4, resulting in 1.8% growth for the full year, the latter after some fresh revisions of previous quarters' data. On unadjusted basis, growth was 1.6% yoy in Q4 and 2% for full-year 2016. This was a substantial slowdown from 3.1% growth in 2015, due to stagnating industrial output and sharply falling construction, whereas agriculture made an important positive contribution. Private sector analysts expected +1.6% yoy in Q4 and 2.1% for the full year, both referring to the unadjusted rate. The full-year market consensus was identical to the Economy Ministry's revised forecast, but - somewhat curiously - it spectacularly undershot the MNB's rather out-of-line prediction of 2.8%. CPI-inflation reached 0.4% mom, 2.3% yoy in January, the yoy rate up from 1.8% from December. The main reason of rising inflation was still the upswing of fuel prices, this time around by 3.3% mom, 15.2% yoy. However, core inflation was slightly down to 1.6% yoy, from 1.7% yoy measured in December. An important consequence is that headline CPI-inflation is now rather substantially above the MNB base rate, but this seems pretty much calculated by the central bank...