Economic Trends in Eastern Europe 2/2013 published

The global economic outlook is still riddled with downward risks. Our forecast is more pessimistic now than it was in April, both our global forecast and our projections for the individual regions, not just for 2013, but, to a degree, for 2014 as well, since the recovery outlook is becoming more and more uncertain, as new risks are emerging. Still, on the whole, the majority of the confidence indicators points toward a recovery/acceleration in the second half – or at least near the end – of the year.GDP growth in NMS_ET 2_2013

The short term growth prospects of New Member States – based on the first quarter results – are rather gloomy. Cyprus is in much worse circumstances than earlier – due to fiscal consolidation private consumption has fallen by 5% not to mention the investments which had a 23% decline last year. Thus the GDP can be decreased by 10% this year. Bank crisis in Slovenia is even worse and the privatization processes begin slowly. Czech Republic is already suffering from the euro zone crisis which is deepened by the fiscal consolidation measures therefore we expect 1% decline here. The downturn of the euro zone can worsen the next year’s prospects of the Visegrad countries through the decline in export demand. Poland and Slovakia are near to stagnation, many GDP components have fallen significantly; the only impulse can be expected from the weakening export.

In Hungary, the first half of 2013 was marked by contradictory tendencies. GDP grew by 0.7% in the first quarter of 2013 against the previous – stunningly weak – quarter, which suggests that the economy is slowly recovering after having bottomed out in the last quarter of 2012. After this relatively favourable quarter-on-quarter growth, there is almost no chance of annual slip of GDP this year: even if the (seasonally adjusted) volume of GDP remains virtually flat through the remaining quarters of the year, annual GDP will stagnate (at worst), or slightly grow (more likely).

The overall growth, however, was accompanied with a further drop in consumption and fixed investments (not just year-on-year, but also against the last quarter of 2012). Fixed investments fell precipitously, at a pace reminiscent TO the crisis-ridden year of 2009. Export also remained depressed: after the drop in Q4 2012, the volume of merchandise exports remained flat in the first quarter compared to the same quarter last year. Quite unsurprisingly, industrial production slipped too in the first quarter, not least because of the “negative stagnation” in industrial export sales. The only markedly positive development in the first quarter was the upsurge in construction output. As it seems, construction is emerging faster than expected after reaching the rock bottom in late 2012.

Download the macro table for Hungary with our forecasts for 2013-14.