Hungary exits recession, amid deficit turmoil

9th June 2010, Comments 0 comments

Hungary emerged from recession in the first quarter when the economy expanded by 0.9 percent, official data showed on Wednesday the day after the government took tough action to correct public finances.

Hungary entered a deep recession at the end of 2008 and the economy shrank by 6.3 percent in 2009.

The recovery reported on Wednesday was driven by rising exports in part to Germany, and by government spending, the final data for the quarter showed.

"According to seasonally adjusted data, the economic performance increased by 0.9 percent in the first quarter of 2010 compared to the previous quarter," the statistics office KSH said in a statement.

On a 12-month basis, the economy grew by a marginal 0.2 percent in the period from January to March, the statisticians calculated.

The final data, which confirmed preliminary figures released last month, showed that growth was driven mainly by government spending and rising exports.

"This latest data has shown that Hungary's growth rate has surpassed the average European GDP growth, even though previous predictions forecast a contraction", said Miklos Hegedus from GKI Energy Research and Consulting Ltd.

He added that "this growth rate was mainly thanks to the increased exports to Germany whose economy has grown as well in recent months".

Another analyst, Gyorgy Barta from CIB Bank, added that "the biggest contributor to the GDP growth was the export sector and the industrial sector, although fiscal belt-thightenings in Western-Europe may change this trend as Hungary's main trading partners, such as Germany, are there."

However, this may change as Angela Merkel, German Chancellor, announced spending cuts amounting to 80 billion euros (95 billion dollars) to consolidate Germany's balance sheets by 2016.

Budget cutbacks introduced by Hungarian Premier Viktor Orban, whose conservative Fidesz party holds a two-thirds majority in Parliament, may slow growth too, because public sector workers will have less disposable income, thus lowering VAT sales tax revenues.

These budget cuts will slow domestic consumption and it may not pick up for another year, but, Hegedus said, "the German situation will not affect Hungary because Germany's economy, as Hungary's, is export oriented."

He said: "This means that if Germany's exports grow, Hungary's exports will grow too because Hungary is a supplier to the German industries."

Government spending rose by 1.0 percent compared with the level in the preceding three months and exports were up 3.2 percent.

At the same time, household spending fell by 0.8 percent.

By sector, economic activity in industry was up by 2.7 percent, while the agriculture sector decreased by 0.3 percent and the construction sector contracted by 2.7 percent. The services sector saw marginal growth of 0.3 percent.

© 2010 AFP

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