"Hungary's GDP growth declined further to 1.1% in Q3 2007 - 0.1 percentage points below the previous quarter's growth rate, which itself came as a cold shower.Lower than at any time in the past ten years, the 1.1% figure indicates how fiscal consolidation is costing a great deal in terms of economic growth. The index is way below the 1.6% consensus of widely spread analyst forecasts.
The error margin of the report, jointly prepared by Hungary's Central Statistics Office and Ecostat is ± 0.2 percentage points, which means that the final report may be this much above or below the first release. (The last time the final GDP figure was 0.2 percentage points below the flash report.)
The 0.3% quarter-on-quarter growth, as opposed to the 0.1% in Q2, offers a measure of comfort, however this figure should not be taken for granted since the final report may differ greatly due to seasonal fluctuations.
It is especially bad news that the index stood at 0.2%, 0.1% and now at 0.3% in the first three quarters of 2007; in other words, Hungary's economy grew at a practically negligible rate so far this year.
In light of the above, the 2% growth rate expected for this year seems increasingly unlikely. While the government's 2.2% projection appeared as a highly conservative estimate early on in 2007, right now this goal does not seem viable at all. While in Q4 a higher figure is possible due for statistical reasons (due to the lower base), and this quarter has considerable weight in the annual GDP figure, however a major jump after the first three quarters' 1.6% average is still very unlikely.
Although the detailed figures will be released later, it is safe to assume that the poor Q3 figure resulted from a number of different factors. In the summer months, the weak performance of agriculture must have had a major impact on GDP, with a slump in the performance of public services another likely culprit.
(In the latter's case, statistical problems arise as well, since added value in the healthcare and education sector is estimated partly from wage costs. Due to fiscal consolidation and the resulting cost-cutting measures at schools and hospitals, statistics may actually underestimate the performance of the public sector.) Some analysts believe these factors may hold economic growth back by as much as 1.7 percentage points this year.
Q3 saw a huge slump in construction industry output as well. Apparently, the upsurge in the processing industry was insufficient to offset all of the negative factors mentioned above."
Source: Portfolio Online Financial Journal
16.11.2007