Hungary’s economy grew 1.1% in Q4 on a quarterly basis, despite a lockdown from mid-November, according to preliminary data from the statistics office.  Analysts had forecast a 0.4% decline q/q. This was the fifth-highest growth in the EU during the October-December period.

Despite the restrictions, the economy was able to muster growth at the end of the year, fuelled by the strong performance of  industry and construction, while the retail sector was stable.

The annual data also surprised on the upside, showing a 3.7% decline in Q4 and 4.3%, when adjusted for working days, less than the 5.5% consensus by analysts.

For the full year, the economy shrank 5.1%, though this was below the 6.4% EU average and was less severe than the government’s forecast. The 5.1% decline over the whole of 2020 is the third worst performance of the economy in the last three years. After the change of regime, the economy collapsed 11.9% and in 2009, during the global financial crisis, GDP slumped 6.6%.

Hungary had been on track for another year with growth close to 5% as it did in the previous two years. The pandemic ravaged Hungary’s export-oriented economy in Q2, leading to a 13.7% y/y decline after 1.9% growth in Q1. In Q3 output was 4.8% lower than a year earlier.

The second wave of the coronavirus epidemic was less damaging than the first one in the spring, the preliminary data showed. A detailed breakdown by sectors will be available on March 2, but data shows that q/q growth was supported by industry and the ICT sector, the KSH said.

Analysts said the Q4 data exceeded even the most bullish projections. That degree of growth, against the backdrop of tighter pandemic restrictions from November, shows Hungary's economy has a "much bigger than expected" potential for recovery, said ING Bank chief analyst Peter Virovacz.

K&H Bank senior analyst David Nemeth said the industrial and construction sectors rebounded sooner than thought earlier last year. Retail sales data show households are still exercising caution, he added.

The favourable data foreshadows a boom in the economy by 2021, showing that there is greater potential in recovery, other analysts said.

The finance ministry said the fall in Hungary's GDP last year was more favourable than the 6.4% average drop in the EU. Hungary is ahead of countries like Austria, Belgium, France, Italy, or the Czech Republic, he added.

Mihaly Varga said the data reflects the resilience of the economy and the impact of government stimulus. The government had supported investments to the tune of HUF4 trillion last year (€11.1bn), which helped Hungary to have one of the highest investment rates in the EU in 2020. 

Varga noted that further developments worth thousands of billions will follow the measures of the government's economic recovery plan. The government expects a return to dynamic growth from Q2 and the economy to expand 4-5% in 2021.