The detailed report on the Q1 GDP left the preliminary growth unchanged at 2.9% y/y. Unfortunately, the structure of the growth more than confirmed our worries that the negative tendencies would intensify further in Q1.
Despite that the overall growth slowed down from 3.3% in Q4 to 2.9%, the domestic demand accelerated to 3.8% from 1.8% in Q4. Household consumption soared 8.1% following the growth of 4.7% in Q4. The consumption actually paid for - not including the social transfers in kind - even soared 9.5% y/y! The government consumption accelerated (+4.5% y/y) too, but weight of this item in the GDP is not important. The total consumption rose by 7.6% y/y.
The overall growth was muted by the change in invento-ries, that strongly decreased compared to the first quarter of 2001. As a result, the overall gross capital formation de-clined by 6.2% y/y, despite that investments rose by 8.6% y/y.
Net export also deteriorated. The deficit in constant prices exceeded all first quarter deficits since 1998. The annual increase of imports outpaced the increase of exports.
The structure of Hungarian growth is alarming. Although we originally expected the NBH’s Monetary Council to leave rates unchanged next Monday, at present we are afraid that the likelihood of a rate hike has significantly increased.
Current account deteriorates further in May due to foreign trade
The current account deficit in May came out worse than we expected at EUR 443 m. The trade balance deficit widened to EUR 346 m. The C/A to GDP ratio rose to 3.4% in May from 2.2 in December 2001. The pace of imports again significantly exceeded the pace of exports. This is another evidence of the strong domestic consumption. Bearing in mind that price developments help to improve the balance in current prices, we must count with even bigger deterio-ration of the trade balance in constant prices in the second quarter.
Jakub Dvorak, Investment Research, CSOB