Economy 31 October 2018, 9:23am

Hungary to stand out in CEE in terms of Q4 growth - analysts

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London-based analysts believe Central and Eastern European and European Union economies kicked off the fourth quarter with a slackening growth momentum, except for Hungary.

Capital Economics, one of the largest London-based global financial-economic analyst houses, said its weighted average of the Economic Sentiment Indicators for Central and Eastern Europe (CEE) fell to an 11-month low in October, suggesting that GDP growth across the region continued to slow at the start of Q4.

The European Commission’s Economic Sentiment Indicators (ESIs) fell in seven of the ten CEE economies that we cover. (See Table.) Indeed, our GDP-weighted average of the ESIs for the region dropped from 107.5 in September to an 11-month low of 107.4 in October.

Based on a variety of indicators, we think that GDP growth in the CEE region slowed from 4.3% y/y in Q2 to about 4.0% y/y in Q3. And the latest ESIs suggest that things didn’t get any better at the start of Q4. (See Chart.) Admittedly, the ESI has been overstating the pace of regional growth in recent quarters. But the dip in the index in October suggests that growth is on course to fall below 4% y/y in Q4.

One rare bright spot was Hungary, where the ESI rose sharply in October (120.4) after a slump in September (116.6). There was a rebound in the construction and industry sub-components of the index.

Looking ahead, we think that GDP growth across CEE will continue to soften over the course of 2019. Higher inflation and interest rates - coming alongside less supportive fiscal policy in parts of the region - will cause domestic demand to cool. Meanwhile, exports will probably be held back by weaker activity in the euro-zone.

Other large London-based analyst houses keep forecasting robust growth for Hungary, although they do believe that the momentum will dissipate next year.

Morgan Stanley’s European Emerging Markets division projects 4.4% economic growth for Hungary for this year and 3.7% for 2019.

These are already revised figures, the previous estimates were 3.9% and 3.3%, respectively. The revision came on the back of robust Q2 growth data.

Analysts at Morgan Stanley underlined that - in line with the growth cycle of the European Union - the growth momentum in the Hungarian economy will also slacken somewhat.