The View 7th edition

ECONOMIC OVERVIEW

8

DAVID M. JOHNSTON MRICS Senior Director, Head of Advisory & Transaction Services

ECONOMIC GROWTH AT HIGHEST LEVEL IN 15 YEARS Despite mounting risks surrounding the global economic ecosystem and concerns about a looming cyclical downturn, most European economies performed above expectations in 2018. Economic growth in Central Europe (4.3%) strongly outperformed the Eurozone average (1.8%) based on the latest full year expectations, with Poland (5.3%) and Hungary (4.9%) being the front runners in the region. GDP growth has not been this strong for 15 years. The three major sectors of the economy (agriculture, manufacturing & industry and services) performed similarly well, with all subsectors increasing output on an annual basis. The service sector remained the biggest contributor to GDP growth, but the performance across subsectors widely varied. As the strongest drivers amongst services, wholesale and retail trade as well as accommodation and food service activities all expanded by ca. 7% y-o-y. Meanwhile, construction output rose by 28% y-o-y, by far the highest pace among all industrial activities. Looking at GDP with the expenditure approach, the economy looks to be in a balanced state. Output growth relied on domestic drivers as household consumption went up by 5.3%. Governmental spending, however, remained flat on last year – keeping the budget deficit around 2% of GDP, below the target rate of 2.4%. As a rather positive sign for future economic growth, fixed capital investment bounced up by 20% y-o-y. Driven by strong domestic demand, imports have grown faster than exports over the last two years, yet the gap in their dynamics seems to narrow as we turn into 2019. Based on GKI’s business sentiment index, a survey based forward-looking indicator, the economy is still in a strong momentum as of Q1 2019. Business sentiment has been consistently improving for the past three years, reaching

Major Economic KPIs

GDP Growth

2018 actuals

8%

2019 forecast

6%

Import Growth

Inflation

4%

2%

0%

Export Growth

Private Consumption

Industrial Production

Source: KSH, Oxford Economics