Hungary's GDP falls by 2.3 percent in second quarter as recession continues

Hungary's gross domestic product (GDP) dropped by 2.4 percent in the second quarter, or according to seasonally and calendar-adjusted and reconciled data by 2.3 percent, compared to the same period of the previous year, the Hungarian Central Statistical Office (KSH) said on Wednesday.

Economic output fell by 0.3 percent, compared to the previous quarter, with the biggest contributors to the decline being the industry, market services (mostly transport), storage and commerce. The decline was mitigated by a good performance of the agricultural sector. According to KSH data, the decline in the added value of services was partly offset by a significant growth in human health and social work services, which approached pre-coronavirus levels. Detailed data for the second quarter will be published by KSH on 1 September.

According to hvg.hu, this is the worst GDP data since the end of 2020, and the first time that four quarters in a row have seen a decline.

After an extended period of growth, it was in the second quarter of 2020, due to the coronavirus pandemic, that the Hungarian economy suffered a sharp downturn, with a fall of almost 15 percent from the previous quarter. This was then recovered in the third quarter of 2020, followed by another period of slow growth until the first half of 2022.

The economy's performance fell again compared to the previous quarter in last year's third quarter, and since then there have been three negative quarters in a row. By definition, two consecutive negative quarters are considered a recession, so the current performance most definitely counts as one.

There are a number of reasons for the downturn. For example, due to Hungary's unparalleled inflation levels, people have been buying less food than before, which resulted in lower retail sales. Last year's extremely dry summer led to a fall in agricultural production, and other sectors such as energy have also been struggling.

Compared with last year, this year is likely to be an excellent one for the agriculture sector (according to a Hungarian saying, May rain is worth as much as gold, and it rained almost through the whole month), which will certainly boost GDP figures. According to Portfolio's article, experts had previously expected the economy to grow by 0.3% on a quarterly basis, while the (unadjusted) annual decline would be 1.3%. By contrast, the indicators came in at -0.3 percent and -2.4 percent, respectively, meaning that

the economy's performance was well below expectations and, contrary to forecasts, the country still hasn't come out of the technical recession.

Nevertheless, the government remains optimistic: according to the Finance Ministry, the Hungarian economy will be on a path of growth again in the second half of the year and could return to performing above the EU average next year. According to the ministry, the current "moderation" is due to the negative economic effects of the Russian-Ukrainian war and the Brussels sanctions, and the European Commission is also to blame because of withholding funds due to Hungary.

Economic growth is expected to be between 0 and 1 per cent this year and, if all goes well, this figure could be much higher next year.