Hungary Q2 GDP down 7.5% yr/yr vs. 7.2% fcast (2)

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Hungary's gross domestic product dropped by 7.5% year on year in the second quarter of 2009 versus a decline of 6.1% in Q1, according to first estimate figures adjusted by calendar impacts, released by the Central Statistics Office (KSH) on Thursday.

Analysts in a Portfolio.hu poll projected Q2 GDP contraction at 7.2% (adjusted for calendar impacts), with estimates ranging between -6.6% and -8.2%.What makes it somewhat hard to assess the data is that the Central Statistics Office (KSH) releases three kinds of figures, the raw number, one adjusted for calendar impacts and one adjusted seasonally and by working days.

The raw data shows a 7.6% GDP contraction, against -6.7% in Q1 and the one adjusted for seasonally and for working days indicates an output fall of 7.4% vs. -5.6% in the first three months.

The q/q index shows a 2.1% GDP decline, less drastic than -2.6% in Q1.

Note that the KSH revised q/q figures downward for previous quarters - to -2.6% from -2.5% for Q1, to -1.9% from -1.5% for Q4 2008 and to -1.0% from -0.8% for Q3 08.

April-June was the fifth quarter in a row when the q/q figure was negative.Bad data, good outlook

The fresh reading is highly disappointing, especially in view of the fact that Hungary's economic slump turned out to be bigger than expected while the Q2 GDP numbers in Germany and France overshot the consensus forecast. Germany's economy dropped 7.1% yr/yr vs. the market's call for a 7.3% contraction.

We need to highlight, though that both economies expanded on a q/q basis, albeit very moderately, so they “officially" got out of recession. This offers a silver lining for Hungary where Q2 might have been the bottom of the pit.

Background

The 7.5% fall is the biggest since the country began publishing quarterly figures in 1996.

The Hungarian GDP print is not the worst in the region, Romania's Q2 GDP was down 8.8% yr/yr vs. the consensus estimate for a 7.0% drop. The Q1 reading was -6.2%. Meanwhile, the Slovakian economy contracted by 5.3% yr/yr in the second quarter, a slightly worse figure than expected, but improved from 5.6% in the first three months. The Czech statistics office is set to release the fresh figures on Friday, with the market projecting GDP decline to have accelerated to 4.2% in Q2 from 3.4% in Q1.

In the first half of the year Hungary's economy contracted by 7.2% according to raw data, 6.5% according to swda figures and 6.9% according to numbers adjusted for calendar impacts. As recession could abate already in H2, the government may be able to meet its 6.7% GDP contraction pledge to global lenders, including the IMF. After the collapse of the country's socialist, planned economy, Hungary's GDP plummeted by 11.9% on annual average in 1991.

KSH statistician Péter Szabó told Reuters the “industry is in the same hole as in the first quarter, although it began to show signs of recovery in May and June. I would highlight the agricultural sector as well, where the crop looks to underperform last year's."

"Besides agriculture, the construction sector also continued to shrink, although the rate there was slower than in the previous quarter, mostly due to the government's infrastructure projects which cushioned the blow of the slowing general economy," he added.

Szabó also noted that both the retail sector and tourism were also weaker, at a rate comparable to the first quarter's decline.

Market reaction

The forint has been left practically unfazed by the worse-than-expected GDP figure and eased only to around 269 to the EUR from 268 about hour after the data release.

The -7.5% Q2 number may serve as yet another argument for doves on the Monetary Council to press forward for front-loaded rate cuts after the restart of the easing cycle (-100 bps) last month. Rate setter Bánfi told weekly HVG in an interview today that the central bank (NBH) should keep lowering rates in order to foster the real economy.

The KSH is set to release detailed GDP data for Q2 on 8 September. Revisions of the prelim numbers are very likely.

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