INSTANT VIEW - Hungary Q4 09 GDP suggests ongoing, but slow recovery

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Magdalena Polan, Goldman Sachs, London

“Second estimate was in line with the flash numbers, and confirmed our forecast that the large positive trade surplus achieved in late 2009 contributed to a better than expected outcome. Large contribution from net exports (+3.9%) and gains in the manufacturing sector confirm that the continued economic recovery will depend strongly on the external demand for Hungarian products, making the economy vulnerable to the overall growth in the EU and OECD countries, in particular Germany and its exports performance."

“The continuous fall in household consumption and investment is a sign that the necessary adjustment of private sector balance sheet continued, as confirmed by the earlier released financial accounts data. However, the rate of decline slowed in Q4, potentially signaling that the process may have reached its peak."

“We continue to expect a progressing recovery in 2010, with qoq growth moving in to the positive territory around mid-2010. We believe that the NBH will soon reach the end of its rate cutting cycle, and reduce the base rate to 5.50% with a final 25bp cut at its next meeting on March 29."

“However, given the forthcoming elections, recent statements from the NBH and the change in Hungarian MPC's composition (likely pushing the balance towards a more hawkish stance), NBH may decide to pause the cutting cycle, and wait for a credible economic plan from the new government before delivering its final cut."

Gergely Suppan, Takarékbank, Budapest

“GDP was driven lower by falling consumption and investments but inventory changes and a still robust net export eased contraction significantly. Every components fell on the production side (agriculture: -13.5% yoy, industry: -7.4% yoy, construction: -5.5% yoy and services: -1.7% yoy), however an improving performance of financial services, thanks to widening margins, eased loss in the service sector."

“On quarterly basis consumption and investments fell further and net exports turned negative but inventory changes led final domestic use to rise. We expect that consumption remains negative in Q1 2010 but investments could turn positive on quarterly basis (but remains negative on annual basis) reflecting by the financial accounts of non-financial companies which started to increase debt following a year of marked debt repayment and supporting by several huge investments managed by foreign owned companies."

“On the production side industrial output could drive GDP growing on quarterly basis (output jumped by 8.8% mom in January!). Hence, we expect that Hungarian GDP could turn finally growing in Q1 2010 on quarterly basis ending recession on technical terms. However, GDP remains contracting on annual term in H1 2010."

“Overall, we expect that GDP will grow by a modest 0.3% yoy in 2010 supported by inventory changes, investments, net exports and base effects following a deep contraction of 6.3% in 2009."

Zsolt Kondrát, MKB Bank, Budapest

“The breakdown of GDP-data was mixed. Consumption was better whereas fixed investment was weaker than we expected. However, consumption and investment together would have resulted in a 6% fall in GDP, which bodes ill for medium term growth. Net export had a positive contribution to growth that easily counterweighted the negative effect of inventories (and errors) this time so that GDP-growth was “only" -4,0% in the 4th quarter."

“I doubt that consumption and domestic demand would pick up any time soon while external demand seems to be stronger according to the latest data. On the production side, there were no big surprises, though it is favorable that the value added of market services came in higher than we expected. We will revise our growth forecasts and send a more detailed analysis later today."

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