In the first quarter, Hungary’s economy contracted by 0.8%, according to figures adjusted seasonally and by working days, which marks a great improvement from a decline of 6.2% in Q4 2009.

The specific factors behind the unexpectedly favourable GDP data are not known yet, but net exports and the inventory cycle presumably played a key role.

The KSH revised the Q4 2009 figure to +0.2% q/q from -0.4%, while the yr/yr Q4 number was left intact (-4.1%).

The Hungarian growth figures are surprising also in light of the fact that the Q1 GDP figures of Germany and France came in largely as expected. We need to highlight, though that the economic output of Germany, the key export partner of Hungary, grew by 0.2% versus the market’s call for a 0.1% decline. Meanwhile, France’s GDP rose by only 0.1% against the consensus for a 0.3% growth.

Although a breakdown of the Q1 GDP data will be released only on 9 June, the prelim figures already indicate higher chances for the economy to grow on annual average this year, albeit the growth is likely to be no more than a few tenths of a percent.

The biggest risk to this assumption is that the forced austerity measures in Europe (as a response to sovereign debt risks) are hampering economic activity. Additionally, tensions on money and capital markets could have a detrimental influence on the banks’ capacity/willingness to lend."

Source: Portfolio Online Financial Journal