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May 17, 2016

GDP growth rate set to rise during second quarter of 2016

Government measures are boosting domestic consumption, such as the Family Housing Allowance and the 5 percent VAT rate on property sales

GDP growth is expected to pick up during the second half of 2016, the government has said.

Despite a quarter-on-quarter GDP drop during the first quarter of this year, Q2’s figure is set to rise.

When looking at these figures it’s important to note that Hungary’s economic growth has not been fueled by loans. Steadily improving employment trends and subdued oil prices are expected to drive domestic consumption in the coming quarters, the government has said.

In the previous quarter, the number of economically active people grew by 150 thousand year-on-year. In coming quarters, the pace of disbursement of EU funds and bank lending are also expected to accelerate.

Government measures are boosting domestic consumption, such as the Family Housing Allowance (CSOK) and the preferential VAT rate of 5 percent on the sale of new residential properties, which are anticipated to revitalize the housing market. The government is expecting the number of new housing units to increase to 13 thousand this year.

In Q1 2016, the output of the Hungarian economy grew by 0.9 percent year-on-year, according to preliminary data compiled by the Hungarian Central Statistical Office (KSH).

Modest growth at the beginning of the year has been the consequence of the cyclicality of EU fund inflows and lower output at motor vehicle manufacturers. In the entire year, GDP growth is expected to pick up substantially, thanks to economic fundamentals and government measures. The soaring number of building permits also signals a positive trend.

Q1’s results were mainly the consequence of the schedule of EU funding, and a telling example of this is lower construction sector output. Among productive sectors, output at the industrial sector has slightly dampened the pace of GDP growth, due to production breaks in winter and a high basis effect.