Macroscope Report Q2 2024 Sample

HUNGARIAN ECONOMIC OVERVIEW

Q2 2024

HUNGARY AND THE GLOBAL BUSINESS CYCLE

The dominant global trend for a year and a half now has been that the manufacturing industry is performing poorly. This pattern particularly adversely affects the economy of those countries in which industry has a higher-than-average share, such as Hungary. That is one reason why the Hungarian economy has difficult times nowadays. However, there are signs from which optimistic observers could conclude that a slow turnaround in manufacturing may unfold from the second quarter of 2024 onwards.

In the last quarter of last year, the Hungarian economy managed to avoid recession for the first time in a year and a half, both quarterly and annually, albeit the growth on an annual basis was only half a percent, and quarterly, there was stagnation. In 2023, the gross domestic product decreased by 0.7% for the year compared to 2022 (adjusted for working days).

Agriculture contributed positively to growth by 2.1 pp, so without agriculture, the decline would have been close to 3%. Industry resulted in a 1 pp drop in GDP, the construction industry’s negative contribution to the GDP was 0.3 pp, while the contribution of services was -0.8 pp. This was provided fully by trade, accommodation services and catering. Other service sectors’ performance was mixed: information and communication and real estate affairs were positive (+0.1 pp each) alongside public sector activities (public administration, defense, mandatory social insurance, education, human health, social care). Services performed particularly poorly in the second and third quarters (-1.5 and -1.6 pp contributions to economic growth, respectively).

Household consumption expenditure, investments and inventory changes were deeply in the red. These were somewhat compensated by the positive GDP contribution of net exports of 4.9 pp.

THE MACROSCOPE REPORT

HUNGARIAN ECONOMIC OVERVIEW

Q2 2024

Source: KSH

Nonetheless, household consumption turned positive in the last quarter of 2023. In 2024, growth may return and shift into a higher gear quarter-by-quarter. The defining elements of this process are expanding household consumption due to further rising employment and real wages and further improving net exports. The construction sector may show some growth, while we expect only a barely visible improvement in industry’s performance and in investments. In 2024, we expect GDP growth of 2.2%.

REAL WAGE GROWTH + RISING EMPLOYMENT = INCREASED CONSUMPTION

Some 52-53% of household consumption expenditure shown in GDP statistics is realized in the retail trade (of which 9% is fuel purchases), and another 4% comes from motor vehicle trade. The remaining 43-44% is accounted for by non-shop consumption (various services, including public services). The proportion of household consumption within total GDP was 62.8% on average over the past 29 years. In comparison, it fell below 55% in the last quarter of 2023; it hasn’t been this low in the past 29 years.

In 2022, retail sales registered 5% growth over 2021. In 2023, the retail sales turnover in volume terms was 3% less than in 2021. Compared to 2022, the drop is much more significant. At the beginning of 2024, the recovery had not yet fully kicked in, as the decline compared to 2021 was still 2% (in January-February), and the data suggested stagnation in a 12-month comparison. While real wages were growing more than 10% in annual comparison at the turn of 2023-2024, this has not translated into an increase in consumption for the time being.

The wage rises can be traced back to the 15% minimum wage increase from last December and the slightly more than 30% uptick in teachers’ salaries in early 2024. On the other hand, the ability and willingness of