Like in other regional countries there have been many Hungarian macro figures published during the week and delivered positive surprise for the market. GDP grew by 2.7% Y/Y and by 0.5% Q/Q in 4Q13, which is the highest read in the last 8 years. But not the speed of the growth is the biggest surprise, rather the structure of the growth. Since 2007 the net export was the main and almost only driver of the economic growth, but in 4Q13 all the subgroups contributed to the growth.
Household consumption increased by 0.5% Y/Y, government consumption by 5.7% Y/Y, gross capital formation by 10.4% Y/Y and net export by 1.2% Y/Y. Industrial production rose by 6.1% Y/Y and 3.1% M/M in January. The vehicle production is still the main driver of the increase, while electronic device production is still suffering. Retail sales were 3.9% Y/Y higher in January than a year before, and not only the food, but also the durable products and fuel sales were increasing.
Although the headline figures are very impressive especially if we take in account the poor performance of the economy in the last years, the sustainability of the growth is questionable. If we filter all the one-off effects (low base effects, election spending) of the economy growth, we would see around 1.5% Y/Y increase of GDP in 4Q13. So regarding the outlook of the GDP growth, we see around 2% Y/Y rise for 2014, but it may slow to around 1.8% Y/Y in 2015.
The EUR/HUF pair remained in the range of 308 and 314 even in the turbulence period and we saw strong buying willingness around the weak end of the range. The improving international sentiment and the strong macroeconomic figures pushed the EUR/HUF to the 309 level. Based on NBH’s Minutes, the Monetary Council looks divided as two members voted for keep base rate unchanged, while seven members (including Mr. Matolcsy, the governor of the NBH) voted for a 15bp cut. In the recent market circumstances the likelihood of another cut is relatively high. Although the HUF was quite attractive thanks to the current account surplus and the low budget deficit, the market started to worry that Hungary able to represent a stable, high level of growth or not (like Brazil or Russia). So with the cut of the base rate it may occur that the HUF might lose its attractiveness and it may weaken suddenly. Anyway, now the momentum is rather for further strengthening in short term, but there is a very strong resistance level at 308, than at 305 and 303.