Falling domestic consumption weighs down Hungary’s GDP

While global economic indicators seemed to bottom out in the first half of the year, the slowdown in the external downturn was hardly perceivable in Hungary’s economic performance, which was held back by falling domestic consumption, even as the effect of the changing external climate on the country grew, the Central Statistical Office (KSH) said in its latest monthly summary published on Friday.

The global economic crisis hit Hungary during a period of budget consolidation. Unlike in many Western European countries, no measures to stimulate consumption were taken, the household loan market was squeezed, wage outflows slowed and high inflation caused real incomes to drop 2 percent in January-September. Social benefits and pensions also fell in real terms. Together with rising unemployment, these factors resulted in a record 8 percent decline in households’ purchased consumption and a 7 percent fall including in-kind social contributions. Household consumption slipped 0.6 percent in 2008 and was down 1.6 percent in 2007.

January-September retail sales volume was down 4.7 percent from the same period a year earlier, passenger transport performance fell 10 percent, catering turnover dropped 6.4 percent and guest nights at tourism accommodations declined 8.4 percent, KSH data show.

At the same time, in line with improving external conditions, the fall in euro-term exports slowed from 25.5 percent in H1 to 18.6 percent in Q3 and to a preliminary 11.8 percent in October. The decline in imports also slowed, although they were still down 21 percent in October from twelve months earlier, which raised the January-October trade surplus to 3.778 billion compared to a 315 million euro deficit in the same period a year earlier.

The effects of the improved global economic climate affected manufacturing output the most because of sector’s close link to exports. January-September output in Hungary’s manufacturing sectors fell 22 percent from the same period a year earlier and decreased 20 percent calculated on an added value basis in the GDP, but the respective declines slowed to 18 percent and 15 percent in Q3. October industrial output showed a further slowdown, dropping 12.9 percent, albeit from a low base.

Investments, however, have fallen at a faster rate since the start of 2008, falling 8.9 percent in Q3 and 7.1 percent in January-September. Investments in the manufacturing sector fell 16.8 percent in Q3 after a 17.8 percent fall in Q2. The fall in inventories within gross capital formation came to a stop in the third quarter, probably first in the trade and farm sectors.