Hungary Likely Exited Recession as Eastern EU Economies Struggle

Zselyke Csaky
·3 min read
1

(Bloomberg) -- Hungary probably exited its longest recession since the 2008 global financial crisis last quarter, even as the war in Ukraine continues to undermine economic growth across the European Union’s eastern wing.

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Hungary’s economy grew 0.2% from April to June compared with the previous three months, according to a Bloomberg survey of economists ahead of data scheduled for release on Wednesday, the first such expansion since the second quarter of last year. It shrank 1.4% on an annual basis.

Poland, the region’s largest economy, probably dropped 2.3% in the second quarter from the previous three months, the third non-consecutive contraction since last year. Facing the fastest price growth in a quarter century, it shrank 0.3% on an annual basis, according to another survey.

The impact of Russia’s invasion has driven inflation to double digits in Europe’s worst cost-of-living crisis in decades and prompted central banks to clamp down by raising interest rates. That’s translating into lower spending from businesses and consumers, which is stifling the economic expansion for most of the economies from the Baltic to the Black Sea.

Tomas Dvorak, a senior economist at Oxford Economics, said the constricting impact of inflation and tighter monetary policy should have begun to ease at the end of last quarter, even as weak demand in the euro area is crimping demand for exports.

“As inflation eases and central banks increasingly look toward normalizing policy, domestic demand should see some pick-up,” Dvorak said in an email. “But we think this will be very gradual, not reaching any significant speed before the end of the year.”

The cost-of-living crisis in Poland’s $690 billion economy is a major point of contention in the run-up to the nation’s Oct. 15 elections, where the ruling Law & Justice party is leading opinion polls but looks set to fall well short of a majority.

The trend extends further across the region. In the Czech Republic, where inflation fell to single digits for the first time in 16 months in June, the economy grew just 0.1% from the previous quarter.

Romania has been an outlier, with steady advances of gross domestic product since the pandemic. It will expand 0.2% on a quarterly basis and 2.5% from the previous year, according to the median estimates in a Bloomberg survey.

The central bank in Bucharest said it expects “subdued growth” in both the second and the third quarters, keeping this year’s advance at “relatively low” levels.

Elsewhere in the region, Slovakia grew 1.5% on an annual basis, beating expectations, while Serbia posted stronger-than-expected 1.7% growth from a year earlier. The forecast for Bulgaria, which will publish its data on Wednesday morning, shows weakening but steady growth.

--With assistance from Marton Kasnyik, Barbara Sladkowska, Andra Timu, Piotr Bujnicki, Slav Okov and Daniel Hornak.

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