Hungary slumps from top to bottom in EU amidst coronavirus crisis

All EU countries have published their revised Q2 GDP data by now. According to quarter-on-quarter figures released by Eurostat, the statistical office of the European Union, the coronavirus pandemic dealth the softest blows to the Baltic States. Finland, Lithuania, Estonia, Ireland, Denmark and Latvia are in the top section of the ranking. Slovakia, which fared badly in terms of GDP growth in the first quarter, also also among the luckier ones with a -8.3% GDP contraction in Q2, the same as Sweden. This probably also has to do with the fact that the country recorded a major downturn already in the first three months of the year, i.e. Slovakia suffered a substantial part of the crisis as early as Q1. 

hungary's gdp shrank by 14.5% q/q in april-june, which was the fourth-sharpest contraction in the eu.

The 14.5% q/q contraction is not new but the latest figures show that Croatia has landed behind Hungary (-14.9%). 

With a 13.5% year-on-year GDP contraction in Q2, Hungary secured itself a place in the middle of the EU ranking; the average output decline of EU countries was 13.9%. Ireland and Lithuania ended Q2 the least wobbly, and while the revision delivered a lower GDP data for Finland it still grabbed the third place with a 6.3% yr/yr GDP contraction. Souther states, including Spain (-22.1%), Italy (-17.7%) and Portugal (-16.3%) fared the worst, but the United Kingdom (-21.7%) adn France (-18.9%) were also among the worst performers. 

As for the first half of the year, Hungary is between the lowest third and the mid-section of the EU ranking, as it lost nearly 15% of its output compared to Q4 2019. The UK and Spain suffered the biggest GDP contraction in H1, but recession was well over 15% also in Italy, France, Croatia and Portugal. 

Lithuania and Finland came out relatively unscathed from the crisis in the first six months (-5.8% and -6.4%, respectively), and Estonia, Sweden and Ireland also recorded lower-than-average GDP contractions. In Central and Eastern Europe, Poland finished in the top third with its GDP down by 9.3%. 

What are the key factors in the contraction?

Finding the reasons why one economy contracts more than another in the coronavirus crisis is a complex issue. At first, we might think that this has to do with the lockdown measures and their rigorousness, but it's not true. Lithuania, which recorded one of the smallest setbacks responded to the outbreak with strict lockdown measures and the same goes for Denmark and Poland. 

Economic policy responses could also play a major role here. Funds injected into the economy, the conditions under which they are disbursed and the speed of the disbursement are all key factors. And there are also socio-economic charactristics, including the structure of the economy. Where tourism has a larger weight the rate of contraction is also greater and vice versa. Losing tourists can exert an impact not only via the direct but also through the indirect weight of the sector (typically in retail sales and transport). Countries where the weight of tourism in GDP is considrable (Croatia, Spain, Italy) output fell a lot, but where it is small (Finland, Lithuania, Sweden), GDP figures are also better. 

Another sector with a similar influence is industry. Where the weight of the automotive sector is large, the contraction was sharper too (for instance, Poland's small decline in GDP compared to other countries is because of the relatively small weight of the automotive industry there), while in countries with robust procyclical sectors (such as Finland's railway rolling stock and boat manufacturing) or with sectors less vulnerable to crises (e.g. the manufacture of electronic parts) the overall picture is also better. 

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