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Hungary GDP Recovery Limited by Investment, Industry

June 6 (Bloomberg) -- Hungary’s recovery from a recession was hampered by plunging investment and shrinking industry, statistics office data showed.

Gross domestic product rose 0.7 percent from the previous three months in the first quarter, expanding for the first time since 2011, the statistics office said today, confirming its preliminary estimate. GDP shrank 0.9 percent from the first three months of 2012, also matching the initial reading.

While agriculture expanded 12.3 percent from a year earlier and construction grew 4.2 percent, benefiting from a low base, according to statistician Pal Pozsonyi, fixed capital formation, an indicator of investment, declined 5.6 percent and industry contracted 3.2 percent. Household consumption fell 1.2 percent.

“Regarding future growth prospects, the continuation of the decline in investments can’t be seen as too encouraging,” Orsolya Nyeste and Zoltan Arokszallasi, Budapest-based economists at Erste Bank AG, said today by e-mail. They forecast 0.2 percent growth for 2013.

Prime Minister Viktor Orban, who faces elections in 2014, has sounded an optimistic tone on Hungary’s economy outlook, saying May 30 that it’s “one of the most promising in Europe.” GDP growth may reach 1 percent this year, according to the premier, whose forecast exceeds the government’s 0.7 percent projection and the European Union’s 0.2 percent estimate.

The forint, which has lost 2 percent against the euro this year, rose 0.5 percent to 297.72 as of 10:55 a.m. in Budapest, having dropped to a more-than four-week low yesterday.

Biggest Contributions

Agriculture and construction output contributed most to GDP in the first quarter, according to the statistics office, rising 27.6 percent and 1.5 percent from the previous quarter as industrial production fell 2.5 percent. Exports rose 3.3 percent from the previous three months and 1.3 percent from a year ago.

Orban sacrificed growth in his first two years in office to bring the budget deficit within the EU limit of 3 percent of economic output and remove the threat of cuts in funding from the 27-member bloc. Measures included Europe’s highest bank tax and extraordinary corporate levies on industries such as energy, damaging lending and investment.

The European Commission last month recommended allowing Hungary to exit budget monitoring for fiscal offenders for the first time since 2004, a move Orban said was a validation of his economic policies. Hungary’s business environment has “constantly deteriorated in the last three years due to a series of measures including restrictions on investors and an unstable regulatory framework,” the commission said May 29.

To contact the reporter 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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