GDP in Q3 far weaker than the official forecast

HUNGARY - In Brief 15 Nov 2016 by Istvan Racz

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This morning, the first estimate of GDP data for Q3 came out at +2% yoy on unadjusted basis and +0.2% qoq, +1.4% yoy on sdab basis. This is rather close to the Portfolio.hu analyst consensus of +2.1% yoy for the unadjusted data, but very far off the +3.6% yoy forecast given by the MNB in its September inflation report. Details of GDP have not been reported yet, but monthly data suggests a key contributor to weak GDP was the industrial sector, where gross output fell by a marginal 0.1% yoy, sda in Q3, due to weakness in car manufacturing and - in our view - even more due to the strong forint.Cumulative Q1-Q3 GDP growth was 2% in unadjusted terms and 1.4% in sdab terms, the relatively big difference caused mainly by the leap year impact in 2016. Annual GDP is now likely to undershoot both the government's original 2.5% forecast and the MNB's more optimistic 3% revised forecast. However, the achievement of fiscal targets is in no danger whatsoever due to this likely shortfall: at present, the annual government deficit is likely to be markedly lower than the 1.7% of GDP revised target set for 2016.But for industrial output to return to material growth again, the forint should depreciate significantly (to EURHUF 315-320 in Q4 and moderately further in 2017).