Expect robust Q1 GDP data tomorrow

HUNGARY - In Brief 14 May 2019 by Istvan Racz

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Analysts expect 5.1% yoy GDP growth by unadjusted data for Q1 to come out from the KSH tomorrow at 9am BUD time. This would be unchanged from Q4 2018 and contrary to everyone's forecast that growth would slow down markedly in Hungary, following the European trend, this year. Even though there have been signs of deceleration recently in retail sales (as rising inflation is eating into the real value of stable and rapid nominal wage growth), exports and tourism (as the economy is indeed cooling in Europe), domestic industry and construction appear to be very strong and even accelerating. In Q1, industrial output was up by 6% yoy (driven by a recovery of car manufacturing, apparently due to increasing relocation of production out of western Europe to the much lower-cost CEE region), whereas construction output exploded by 45.5% yoy (!), as essentially all categories exhibited stellar growth rates in Q1. Specifically, residential housing construction is in an exceptional rush to complete projects before the higher VAT comes in from January 2020, and local governments are spending on infrastructural development like hell, ahead of the nationwide local government elections, due this fall.This latter one might sound to be in conflict with news that the government is spending much less on fixed investment early this year than in 2018, but it is not. The thrifty budget trend refers to the central government, which indeed spend less on development projects, and disburse much less of EU funds than earlier. But local governments happen to have hoarded up big piles of development funds, mostly from the early disbursement of EU funds, over the last two years. And they are spending o...