Adjusted for seasonal and calendar year effects, GDP shrank by 2.3%.
KSH said industry and market-based services, mainly transport, warehousing and trade, contributed the most to the decline, while the drop was moderated by the performance of agriculture.

Quarter on quarter, GDP eased by an adjusted 0.3%, falling for the fourth quarter in a row.

Commenting on the data, the finance ministry said in a statement that the Hungarian economy would return to growth in the second half of the year and may do better than the EU average next year, notwithstanding the war in Ukraine and “Brussels sanctions”.

“The economy’s fundamentals are stable,” the statement said, noting record employment and a jobless rate among lowest in the European Union.

Further, it noted the strong performance in agriculture and foreign trade and falling inflation. Whereas Hungary, it added, had not received EU recovery funds owed to it, the economy was 4% above the pre-pandemic level, “while the EU average is 3.1%”.

The statement said the economy was weighed down by the European Commission’s refusal to release EU funds to the country.

Even so, Hungary recorded 7.2% growth in 2021 and 4.6% growth in 2022, thereby outperforming the EU average from the pandemic baseline.

The ministry pointed to higher real earnings and consumption, growth in industry and an improving foreign trade balance, all of which would boost the economy.

Thanks to government measures, inflation is expected to fall to single digits before the end of the year, the statement said. Meanwhile, the Hungarian investment rate, at 28%, “is currently the highest in the European Union”, it said.

Minister of Economic Development Márton Nagy in a statement emphasised the link between the GDP data and the war in Ukraine and sanctions, which “caused a drop in consumption and a slowdown in investments”.

Other external impacts included the stagnation of the German economy, he said. But the Q2 figure, he added, represented “the bottom of the negative economic cycle” and the economy was set to return to growth swiftly in the third and fourth quarter.

He noted an abundance of new foreign investments and a high jobs level of almost 4.8 million, as well as robust vehicle and battery production and “soaring exports”.

Nagy said the government aimed to avoid recession in the full year and targeted 4% growth in 2024.