Hungarian Economy Slips Into Second Recession in 4 Years

Hungary’s economy entered its second recession in four years before a resumption in talks over an International Monetary Fund-led bailout loan.

The economy contracted a preliminary 0.2 percent in the second quarter from the previous three-month period, when it shrank a revised 1 percent, the Budapest-based statistics office said today. Gross domestic product fell 1.2 percent from a year earlier, compared with the 1.3 percent median forecast of 13 economists in a Bloomberg survey.

Hungary joined the Czech Republic in recession as Romania returned to growth after two consecutive quarters of decline. Hungary resumed talks with the IMF and the European Union in July after a seven-month delay as it seeks about 15 billion euros ($18.2 billion) to reduce financing costs and protect against contagion from the euro area’s debt crisis.

“The figures aren’t surprising,” the Economy Ministry said in an e-mailed statement today, citing the slowdown in Hungary’s export markets which caused a “temporary loss of momentum.”

IMF and EU officials are focusing on untangling policies that contributed to the downgrade of Hungary’s credit to junk as recessions in the euro region sap demand for the country’s exports. They include the flat personal income tax, which cut revenue without lifting consumption and prompted the Cabinet to close budget holes using extraordinary industry taxes that reduced investment and halted economic growth.

Forint Rate

The forint, which fell 15 percent in the second half of last year, the most in the world, has gained 13 percent in 2012 as investors speculate that Hungary will obtain an IMF loan. The currency strengthened 0.1 percent to trade at 279.25 per euro by 9:10 a.m. in Budapest.

Prime Minister Viktor Orban needs to move away from “ad hoc” taxes to close the budget deficit and should create a more “business friendly” environment, the IMF said July 26 after a week of “constructive” talks in Budapest.

The IMF and the EU disagreed with Hungary’s growth forecast at the start of aid talks, the government’s chief negotiator Mihaly Varga told the Figyelo newspaper July 19. The Cabinet’s 2013 forecast for 1.6 percent growth exceeds the 1 percent estimate in a Bloomberg survey of 23 economists.

Second-quarter growth data may help convince the IMF of the soundness of the government’s economic forecast, Varga told Figyelo. The Cabinet has said IMF talks will resume next month.

German Growth

The European Commission forecasts a 0.3 percent contraction for the euro economy this year. Growth in Germany, Europe’s largest economy and Hungary’s biggest export market, was 0.3 percent in the second quarter from the previous three months as exports and household spending helped to fend off the sovereign debt crisis.

Hungary’s economy contracted even as Daimler AG’s Mercedes- Benz factory started deliveries of its B-Class compact cars from the central city of Kecskemet in April. Daimler, which produces about 200 cars a day, won’t stop production in the summer, the state-run MTI news service reported July 3.

“Production is stagnant or dropping basically across the economy,” statistician Peter Szabo told reporters today, adding that a decline in agricultural output in the second quarter contrasted with the significant increase last year.

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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