April 25, 2024

CEE ECONOMY-Hungary avoids fourth-quarter contraction with farming boost as economy sputters

March 5 (Reuters)Hungary’s economy narrowly avoided a contraction in the fourth quarter due to a large boost from farm sector output, final data showed on Tuesday, although that driver is likely to fade in the coming year, dampening a recovery.

Fourth-quarter economic growth HUGDPF=ECI was flat both in year-on-year terms and compared to the previous three months, the Central Statistics Office (KSH) said, with the volatile farm sector adding 2.5 percentage points to fourth-quarter output.

Industry, services and construction dragged on growth in the last three months of 2023, with Hungary’s economy weighed down by weakening export demand and the European Union’s highest interest rates to rein in inflation from over 25% a year ago.

“The economic recovery got a harsh reality check as GDP growth stagnated in 4Q23. As we entered the new year with a much less positive carry-over effect, we lower our GDP forecast for 2024,” ING economist Peter Virovacz said in a note.

“We believe that agriculture is likely to be a drag on growth due to last year’s high base, while the harvest season is likely to be average at best,” Virovacz said, slashing his forecast for 2024 GDP growth by a full percentage point to 2.1%.

Economists polled by Reuters last month projected 2024 GDP growth at 2.7%, a far cry from Prime Minister Viktor Orban’s expectation for 3% to 4% expansion.

While the Hungarian central bank has cut rates sharply in an easing campaign launched last May, halving its base rate to 9%, the scope for further aggressive cuts is narrowing amid risks of a rebound in price growth in the second half.

Abandoning plans to trim Hungary’s budget deficit below 3% of economic output this year, Finance Minister Mihaly Varga said on Monday that economic improvement was much slower than previously expected.

(Reporting by Gergely Szakacs Editing by Bernadette Baum)

((gergely.szakacs@thomsonreuters.com; https://x.com/szakacsg; +36 1 882 3606; Reuters Messaging: https://www.reuters.com/authors/gergely-szakacs/))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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