Hungary’s economy grew just 1.6% in the fourth quarter of 2016, according to unadjusted preliminary data, statistics office KSH reported on February 14. The result is below market expectations and represents the slowest rate of expansion among the Visegrad countries.

The reading leaves full-year growth at 2% compared to 3.1% the previous year. That is well below both the government’s 2.5% full-year growth target and the central bank’s latest forecast for a 2.8% expansion. The poor reading mainly reflects the struggles of the industrial and construction sector throughout the year on the back of a fall in investment.

According to seasonally and calendar adjusted data, Hungary’s Q4 economic growth was 1.5% and increased 0.4% on a quarterly basis. In its estimate, KSH noted that "the main contributors to the growth rate were market services and agriculture,” while “the performance of industry stagnated" while construction output continued to drop. The statistics office will publish detailed data on March 7.

Among other Visegrad countries, the pace of expansion also slowed in Q4 in the Czech Republic and Slovakia, to 1.7% and 2.9%, respectively. In contrast, growth surprised to the upside in Poland, where GDP expanded by 3.1% y/y in Q4, up from 2.3% y/y in Q3, Capital Economics notes. GDP growth in Romania also gathered pace in Q4, rising to 4.8% y/y.

Analysts expect economic activity in Hungary will pick up in 2017, driven by continued robust household consumption together with a rebound in EU fund absorption and increased investment activity.

The Hungarian economy is likely to grow 3.4% this year, forecast analysts at Erste, although they note that "uncertainties around global growth prospects may pose some risks on export developments”. 

The European Commission raised its 2017 growth forecast for Hungary by 0.7pp to 3.5% in its latest economic outlook, while the Hungarian government expects growth to push above 4% supported by a massive stimulus package passed in December.