Drop in agriculture brings down Hungary economic growth in Q3 below forecast

By Money Times

Nov 15, 2015 11:21 PM EST

Registering slowest growth rate during the past nine quarters, Hungary's economy growth rate was weakest during the third quarter ending September as agriculture production drop impacted the gross domestic product (GDP) significantly. The stagnant construction activity coupled with underscoring risks to the government's capacity to keep up the economic momentum has been adversely impacting the GDP growth rate. 

The GDP growth rate was 2.3 percent in July-September quarter was weakest for the nine quarters since second quarter of 2013, according to Budapest-based statistics office. The average growth rate forecast based on 12 estimates in a Bloomberg survey was 2.5 percent. 

The Bloomberg reports that Hungary's economy grew 2.3 percent during the third quarter when compared with the previous corresponding quarter and 0.5 percent from the previous second quarter. Statistician Zsuzsanna Boros said: "Agriculture output dropped, construction stagnated, while manufacturing output-growth slowed compared with the year-ago period."

The agriculture production was impacted owing to dry summer. Barring this, the GDP growth would have been at three percent, according to the Ministry for National Economy. Though the GDP growth rate is more or less stable, the economy expansion is not generating debt. This has reduced the vulnerability of Hungary to external shocks. 

Hungarian economic growth rate of 2.3 percent is still above the average growth of the EU. The influx of refugees, Volkswagen scandal and slowdown in China's economy factors are not that much impacting the Hungarian economy. The Hungarian Government is keen on EU funding disbursement, lending, flexible labor market, promoting investment and boosting construction activity as indicated on their website.

The funding from European Union may slow down from 2016. The EU funding has been the main source of investment in Hungary. Hungary's government and its central bank are jointly working on exploring ways to how to ease the impact of slowdown of EU investment. The Hungary government is encouraging banks by providing them incentives to keep up the lending activity. It's also planning to lower taxes for certain industrial sectors.

The Hungary GDP is supported by expansion of industrial output mainly driven by automobile manufacturing sector as reported by Hungary Today. The trade activity, lodging services and hospitality sectors are major contributors to the Hungarian economy. The Hungary economy registered 2.4 percent growth in second quarter and 3.1 percent during the first quarter of 2015. The GDP growth rate rose 0.5 percent in the second quarter. 

Hungary is the third fastest growing economy in the European Union (EU) after Ireland and Luxembourg. The manufacturing activity is driving the Eastern Europe economy. The EU forecasts the Hungarian growth rate may slowdown to 2.9 percent for 2015 and 2.2 percent in 2016.

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