The latest report on the Hungarian economy

Yesterday the Central Statistical Office (Központi Statisztikai Hivatal) and Ecostat, an economic research institute, announced that second-quarter GDP fell by 7.6% year on year (YoY). Higher than the consensus expectation of -7.1% YoY. Economists first noticed signs of the coming recession at the end of the second quarter of 2008 when there was a decrease of 2.1% in economic growth compared to the first quarter of 2008. However, the more optimistic sorts could point to the fact that in comparison to the situation a year earlier there was still economic growth. Well, no longer. In the first quarter of 2009 the YoY decline was 6.7%. Quarter on quarter the new figures reflect a 2.1% decline, only a slight improvement over the first quarter decline of 2.5%.

We non-professionals might find these figures shocking, but the experts are not terribly surprised. Moreover, they predict that this quarter should mark the bottoming of the recession. From here on, they hope, the economy will slowly recover; at least the rate of decline should decrease. This optimism is based on the latest figures coming out of Germany where there was positive economic growth of 0.3% in the second quarter from the first quarter. Because Germany is Hungary's biggest trading partner, they think that the German recovery will most likely bolster the Hungarian economy. As the outlook for exports improves, industrial production should ramp up. There was also a presumably one-off factor in the poor Hungarian figures–the very bad harvest in Hungary due to drought. But retail and tourism continued to weaken at a rate comparable to the first quarter's drop; they will undoubtedly take longer to recover.

Although experts are cautiously optimistic about economic improvement in Hungary, however tepid and slow it might be, the population is unlikely to experience any major changes in their everyday lives. Unemployment will remain high and real wages will most likely stall next year. But economists contend that the "crisis" will actually help the Hungarian economy over time. Long postponed but necessary steps taken by the Bajnai government should be beneficial to the economic well being of the country. However, they are unlikely to improve MSZP's fortunes at next year's elections. 

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YoY it is indeed.

Odin's lost eye

Sandor I fear that the German Recovery is just a ‘restocking spike’. German companies tend to hold more stock than UK companies. But we shall see. There was a similar ‘spike’ in both the UK and U.S. economies a month or so ago.


“But economists contend that the “crisis” will actually help the Hungarian economy over time.”
It won’t surprise you to learn that I think this opinion says more about the collective stupidity of mainstream economists in Hungary, than it does about the condition of the Hungarian economy.
7.6% is a catastrophic fall by any standard, and I suspect that it is only because of the truly eye-watering pace of contraction in the Baltic states that anyone can be taken seriously being remotely sanguine about such a number.
We’ve seen a stabilization of the contraction in the second quarter figures for a number of large Eurozone economies; we have incomplete figures from the UK indicating – contrary to expectations – that the contraction there continued. What we don’t know – and the evidence of what is going now is somewhat unclear – is whether this is a temporary pause in the contraction; a stabilization with no recovery; or the beginning of sustained growth. My hunch is that it is the second of these, but when we have two quarters’ figures we will have a trend.