Steady GDP Growth Thanks to Increase in Consumer Spending

As a result of a steady increase in the value of wages, consumption has also increased, contributing significantly to the Hungarian economy being able to achieve a result above the EU average, reports Világgazdaság. However, the lack of foreign demand and this year’s drought damage have had a negative impact on investment, which fell compared to the previous year.

Analyzing the recently published detailed GDP growth data, experts conclude that the situation could be even worse given the weakness of the German economy. It is clear that Hungarian industry is underperforming due to the economic difficulties in the country’s main export markets, including the downturn in Germany.

However, the government’s recent measures to support consumer growth have clearly had an effect.

Thus, in the second quarter of 2024, GDP growth was driven by consumption, as household consumption grew by 1.1% compared to the first quarter and by 4% compared to a year earlier, including a 4.2% increase in consumption expenditure.

Hungary’s gross domestic product grew by 1.5% in the second quarter on a raw basis and by 1.3% on a seasonally and calendar-adjusted basis compared with the same period a year earlier.

Although consumption was up, it could not fully offset the negative effects of the still unfavorable external environment, falling investment due to a lack of external demand and this year’s drought. As was already known from the monthly industrial production data, the further decline in the sector should not have come as a surprise, with industrial output falling by 1.5% compared to the previous quarter and by 2.4% compared to a year ago, reflecting the particularly weak German economy.

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Weak external demand, war-related caution and uncertainty, a sharp fall in orders and historically low capacity utilization led to a 15.4% drop in gross fixed capital formation (GFCF), with a sharp 35% fall in manufacturing investment.

However, new foreign working capital investments underway or starting up could turn the tide in the coming period.

Consumption is gradually picking up thanks to real wages that rose by an average of close to 10% in the first half of the year, although the cautious motive has not yet fully dissipated, as reflected in the unprecedented increase in financial wealth in the first half of the year. A further easing of the prudence motive could therefore create scope for a further pick-up in consumption. This, in turn, should accelerate Hungary’s GDP level further towards the EU average.

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