• Hungarian GDP fell 7.6% y/y in Q2 down from a drop of 6.7%, somewhat more than the consensus expectation of -7.1% y/y, but slightly better than our forecast of -8.0% y/y.
  • Overall today’s GDP numbers are a disappointment and even though we see some stabilisation in the Hungarian economy we only expect a relatively fragile recovery. We now expect GDP to fall 6-7% y/y on average in 2009.
  • The weaker-than-expected GDP numbers keep the door wide open for further monetary easing in Hungary.

This morning the Hungarian Central Statistics Office published GDP numbers for Q2. Hungarian GDP fell 7.6% y/y in Q2 down from a drop of 6.7%, somewhat more than the consensus expectation of -7.1% y/y, but slightly better than our forecast of -8.0% y/y.

GDP dropped 2.1% q/q (seasonally adjusted) in Q2 – nearly as sharp as in Q1 when GDP fell 2.5%. Judging from the quarterly numbers one can hardly talk of a stabilisation in economic activity in Hungary.

The breakdown of the GDP numbers has not yet been published, but it seems clear that it continues to be extremely weak domestic demand that is the main culprit.

However, we see (weak) signs of a beginning recovery, especially coming from an improved outlook for exports helped by the budding recovery in the European economy. However, domestic demand is likely to remain under pressure for some time as unemployment continues to rise and higher VAT will hit consumers in Q3 and Q4. Most help will come from “technical factors” as the base effect on the Q3 and Q4 GDP numbers will be relatively high, which will help year-on-year growth to “recover”.

Overall, we expect GDP to fall 6-7% y/y in 2009 and foresee a fragile and weak recovery in growth in 2010. The weak GDP numbers are yet another argument for further monetary easing in Hungary.

Today we also received the GDP numbers for Romania. Romanian GDP dropped 8.8% y/y in Q2 - this is much worse than the consensus expectation of 6.9% y/y and down from 6.2% y/y in Q1. GDP could easily drop in double-digit figures in 2009 in Romania. The numbers are obviously negative for the Romanian markets.