WOOD Flash – Hungary macro: materially weaker than expected

The flash estimate of the 2Q24 seasonally- and calendar-adjusted real GDP revealed an expansion of 1.3% yoy, meaningfully weaker than our expectation of a 2.7% yoy rise and slower than the 1.6% yoy seen in 1Q. The economy contracted on a quarterly basis, instead of keeping a steady pace of expansion, which was our baseline scenario. The full breakdown is not available, so we speculate that the low print is the result of falling inventories and investment, which should reverse only minimally in 3Q. The July business surveys maintained the core message that the industrial sentiment in Europe is stagnating and, for the first time, at the Euro area level, there was a sharp drop in hiring appetite, which make us wary of the risk of a deeper loosening of the labour market than what we have seen so far. We have, thus, downgraded our real GDP estimate to 1.5% this year, presenting material downside for our forecast of 2.5% and the MNB’s 2-3%. We also emphasise that we see no fast solution for the dispute between Hungary and Ukraine, which may well result in energy shortages for a period ahead of the winter. These risks would allow the MNB to cut by an additional 25-50bps this year, beyond our year-end forecast of 6.25%, but heightened political and budget risks may force a further increase in the risk premia.