Hungary: Investment supports growth, but foreign exchange reserves continue to fall

​Growth has regained momentum

Real GDP growth decelerated to +2% in 2016 from +3.1% in 2015, mainly a result of reduced EU fund absorption which caused a sharp drop in fixed investment by -15.5%. However, investment is expected to rebound sharply in 2017 as EU co-financed investment activity will rise again under the 2014-2020 programming period.   

Indeed, in H1 2017 real GDP rose by +3.7% y/y, driven by a +24.8% y/y surge in investment. Private consump¬tion increased by +3% y/y in H1 while public spending contracted by -3.9% y/y. Exports expanded by +6.5%, outpaced by imports at +7.6%, so that net exports deducted -0.3pp from H1 growth. Inventories subtracted -1.8pp from H1 growth. The dynamics of both investment and exports moderated from Q1 to Q2 and we expect this to continue in H2 while the growth pattern should broadly continue otherwise, resulting in full-year growth of +3.3% in 2017, followed by +3% in 2018