- 11 Mar 2010 2:00 AM
The revised GDP data are no different from the preliminary figures, so our previous view that the rate of contraction eased has not changed. It is not really the yr/yr index that proves that (it went up to -4.1% in Q4 from -7.1% in Q3), rather the fact that the q/q decrease was "only" 0.4% now, which has not been this small for 18 months.
According to Eurostat flash estimates, the European Union’s economy contracted by 2.3% yr/yr in the October-December period of 2009. The data show a smaller drop in output than in Hungary in 17 member states and a larger decrease in six member states.
When it comes to the revised GDP data for Hungary, the devil is in the details. We could already suspect from the latest monthly production print that Q4 was not exactly a strong quarter for the industry therefore it comes as little surprise that the sector added to growth less than in Q3. Looking at the bigger picture from the production side we find that it was the industry that made the biggest dent in the hull of growth over the past 12 months. This is attributed to the fact that while exports are picking up, domestic sales continue to decline and the overall performance of the sector remains poor. A silver lining may be that the industry kicked off 2010 on a stronger footing and confidence indices also forecast growth for the short term.
The construction sector also fared poorly in Q4 09, and the only segment in services that was not in recession is financial intermediation and real estate activities. Even when we take a closer look we cannot find a solid reason why the q/q contraction moderated to 0.4% from 1.2%, since none of the sectors showed a markedly better performance. This also highlights the uncertainty of the q/q data and that the improvement in the 12-m index stems mainly from the base effect. Note that the Hungarian economy took the most dramatic plunge at the end of 2008, early 2009.
Regarding the consumption side, the picture is slightly more consistent. The rate of decrease in the final consumption of households moderated (by 0.8% q/q vs. -2.3% in Q3), the actual final consumption of the government increased (+1.4% q/q vs. +0.3% in Q3), which is surprising in view of the Q4 budget balance improvement, and gross fixed capital formation was a tad less disappointing (-1.9% vs. -2.1%). Exports did well too (+3.4% q/q), but interestingly enough the growth rate in imports has been bigger on a short base for the second quarter in a row (+4.4%).
The 12-m indices of these show the following picture:
There are three points in the detailed report that are interesting, but not heart warming, at all. The 6.3% GDP contraction recorded in 2009 is the biggest in Hungary since the change of regime and means that the economy stepped back three years. The question is how dramatically did the crisis severed the already not to bright potential growth and whether Hungary will be able to make a correction swiftly.
The other is that Hungary’s growth still lags behind the expansion of the euro zone, although the gap has indeed narrowed. The euro zone has been growing at a faster rate than Hungary for the past four or five years, which means the country failed to make any progress to catch up. This is underpinned by several other statistical data, as well.
The third sad phenomenon is that the investment-to-GDP ratio of the Hungarian economy has been decreasing gradually and by now it has dropped to 20%, a very low figure for an emerging region."