Published by Global Banking and Finance Review
Posted on April 30, 2025
PRAGUE/BUDAPEST (Reuters) -Hungary's economy shrank at the start of 2025 for the fourth time in the past six quarters, while household consumption continued to buoy the Czech economy.
Central Europe's economies are counting on rising household spending to drive recovery this year, compensating for firms that are facing rising risks and uncertainty as U.S. tariffs upend global trade and pinch growth forecasts in the region.
While central Europe has little direct trade with the United States, countries like Hungary and the Czech Republic rely heavily on exports to bigger European Union partners like Germany that will be hit by tariffs.
Preliminary data on Wednesday showed Hungarian gross domestic product fell 0.2% quarter-on-quarter after a 0.6% rise in the fourth quarter, according to the statistics office.
On a year-on-year basis, the economy stagnated in the first quarter, the office said, without giving a detailed breakdown.
"The data represent yet another nasty surprise," Erste Group Bank economist Orsolya Nyeste said.
"Low business confidence has probably led to a further decline in investments, while the weakness of external markets implies unfavourable export data."
The data do not include the possible negative effects of the trade war, which represent further downside risks to GDP in the coming quarters, Nyeste said.
In the Czech Republic, policymakers expect slower growth ahead also due to trade war risks.
In the first three months of 2025, the economy grew by 0.5% quarter-on-quarter, the Czech statistics office said, as household consumption was the main driver. Gross capital formation and external demand had a slightly positive influence, the office said.
Growth was 2.0% year-on-year, although trade had a negative contribution.
The Czech Finance Ministry cut its 2025 growth forecast to 2.0% from 2.3% this month due to the impact of U.S. trade policy raising uncertainty and hurting investment activity.
Hungary's central bank has said U.S. tariffs could shave 0.5 to 0.6 percentage points off growth. In March, it forecast 2025 growth at 1.9%-2.9%.
Moody's Analytics said this week that central Europe - whose countries' exports as a share of output are above the EU average - needed to find new export markets and new growth drivers amid the global economy shake-up.
(Reporting by Jason Hovet in Prague and Gergely Szakacs in Budapest; Editing by Mrigank Dhaniwala)
