Hungary’s second-quarter GDP data, released Tuesday by the Central Statistical Office (KSH), confirmed the expected turnaround in the construction sector and revealed other unexpectedly positive developments – a welcome sign for the country’s slowly recovering economy, Világgazdaság reports.
According to the detailed data, output grew by 0.2% year-on-year and 0.4% quarter-on-quarter, meaning a technical recession was indeed avoided. Beyond that, the data held several pleasant surprises, even if the Hungarian economy still falls short of the expectations set by the government and economic actors at the beginning of the year.
Domestic consumption remains the main driver of growth, increasing by 4.5%, while export-oriented industry declined by 3.3%. A favorable development regarding consumption is that it has finally accelerated compared to previous months.
The construction sector showed remarkable strength: output grew 3.4% year-on-year and 6% quarter-on-quarter.
Even more promising, new orders jumped 67.8% in June, raising the year-to-date contract volume by 17.9%. Though the sector has been volatile due to large state projects, government stimulus now suggests a sustained upward trend.
A key factor is the government’s “Otthon Start” (Home Start) program, launched September 1, aimed at enabling the construction of 50,000 new homes over five years. This addresses the sharp decline in new housing caused by inflation in recent years. Adding to this, a home renovation subsidy program may launch in October. Reportedly, the government is considering HUF 10 or 15 million (EUR 25,300 / 38,000) support schemes.
Still, construction’s contribution to GDP is only 6%, compared to industry’s 20%, meaning it cannot fully offset industrial weakness.
A major question remains whether industry will recover, which, according to current signs, is not likely to happen soon. While the KSH reports a 0.6% quarter-on-quarter increase in manufacturing volume, the sector’s overall performance remains so weak that it still fails to contribute to growth.
In fact, during the second quarter, industry continued to drag down the national economy, reducing overall performance by 0.7%.
This aligns with the volatility seen in Germany, that also weighs heavily on Hungary’s economy.
Contradictory data continues to arrive from Germany month after month. While there were rebounds in March and May, output turned negative again in April and most recently in June, with a 3.6% decrease. This is closely related to the tariff war. Although it has temporarily eased, it remains uncertain how badly German companies will be affected by the elevated tariffs.
At the Tranzit Festival, Antal Rogán, head of the Prime Minister’s Cabinet Office, said Hungary must find realistic growth points with funding behind them, identifying construction as a key breakout sector. However, relying solely on domestic consumption is unsustainable, Világgazdaság points out. Small economies like Hungary face risks of debt accumulation due to increased imports — as seen in Romania, where GDP-debt was at 20% in 2008, but by this year it is expected to reach 60%. In the long term, export-oriented growth remains the only viable path, but it also requires Germany’s recovery to gain real traction.
Via Világgazdaság, Featured image: MTI/Krizsán Csaba
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