Hungarian economy’s growth is larger than previously reported
Data confirm that the Hungarian economy has switched into a higher gear, Minister of Finance Mihály Varga pointed out. The main driver of growth was the stimulating effect of the six-year tax and wage agreement, he added.
This has been the highest growth rate since 2005. However, unlike in the mid-2000s, current growth processes are stable and sustainable. Expansion has not been fuelled by borrowed money, on the contrary: thanks to high external financing capacity the government debt-to-GDP ratio has been declining rapidly, he said.
The bulk of growth has been generated by growth in market services. Wages rises have underpinned not only the retail sector but several services providers, such as the tourism, property management and financial services sectors, the Minister noted.
On the production side, the rate of output growth has moderated in the industrial sector (+3.6 percent), while the value added of the construction sector soared by 23.7 percent year-on-year. On the other hand, almost every economic sector has added to growth which shows a balanced growth structure. The agricultural sector managed to post output growth despite adverse weather conditions, and thus contributed 0.1 percentage point to the rate of overall GDP growth.
On the expenditure side, consumption has remained a major driver of growth, as household final consumption expenditure increased by 5.3 percent year-on-year. The factors behind this positive trend were rising wages and a record-breaking employment rates.
Gross fixed capital formation, another component of expenditure, gained 15 percent. This was caused by robust private and public sector investment activity facilitated by the accelerating absorption of EU funds, recently announced projects by large enterprises and the sharp increase in the number of housing projects.
Hungary’s performance was remarkable even from an international perspective, Mihály Varga said. Eurostat’s flash estimate on the basis of adjusted data shows that GDP growth in EU member states averaged 2.2 percent in the second quarter; with a growth rate of 4.6 percent Hungary’s economy grew double as much as the EU average.
Data clearly signal that our region has become Europe’s growth engine as growth rates in surrounding countries have repeatedly exceeded the average growth rate of the EU. Hungary’s GDP has gained more than 20 percent since the beginning of 2010. Thanks to recent dynamic expansion, Hungary’s accumulated growth exceeded that of the Czech Republic compared to data of 2010, and it has caught up with that of Slovakia compared to 2014.
In the second half of the year we are expecting favourable trends to continue, and the economy may post an even higher growth rate than the projected 4.3 percent of the Convergence Programme, Mihály Varga stressed. ■