Evaluation of REACT-EU-funded projects

The aim of the evaluation is to assess the use of the REACT-EU funds allocated to Hungary under Regulation 2020/2221/EU of the European Parliament and of the Council of 23 December 2020 (hereinafter referred to as REACT-EU) to support the response to the pandemic and its social consequences and to prepare for a green, digital and resilient economic recovery. The REACT-EU funds should be used within the 2014-20 programmes, either by complementing existing operational programmes or by creating a new programme. The REACT-EU funds can be used until the end of 2023, irrespective of the category of region, including the Central Hungary Region and Budapest, with 0% domestic co-financing, to cover costs incurred after 1 February 2020.

The evaluation covers three operational programmes: the HRDOP, the EDIOP and the EEEOP. 10 schemes are evaluated, 5 HRDOP, 2 EDIOP and 3 EEEOP. The main areas of intervention are calls directly related to COVID-19: promotion of the health sector and promotion of firms affected by the pandemic; assistance to refugees from Ukraine, calls related to addressing the consequences of climate change on water management and promotion of the energy sector- fostering green transition.

Overall, the experience is that the more flexible use of cohesion funds, the more flexible rules and the faster response to problems have been well received by both applicants and managing authorities. Experience shows that measures that have worked well are those that have built on the experience of previous schemes. In view of the tight deadlines for the absorption of funds, where no previously developed programme was available, absorption was not fully successful.

	2023 Fact	2024 Forecast	2025 Forecast
GDP	-0.9%	0.6%	2.8%
Gross Fixed Capital Formation	-7.4%	-8.0%	4.6%
Industrial Production	-5.5%	-3.0%	3.7%
Gross Salaries	14.2%	13.5%	8.3%
Unemployment Rate*	4.1%	4.5%	4.1%
Current+Capital Account**	1.2%	2.3%	3.0%
General Government**	-6.7%	-5.0%	-4.5 %
Consumer Price Index*	17.6%	3.7%	3.7%
MNB Base Rate***	10.75%	6.5%	5.5%
10-Year Yield***	5.86%	6.5%	6.0%

*annual average **in % of GDP ***at year-end

03.12.2024. GDP slides in Q3 amid plummeting investments, expanding consumption and a negative turn in net exports

The second estimate confirms that the unadjusted GDP was down 0.8% in the third quarter of 2024. Compared to the previous quarter, the GDP contracted by 0.7%.
On the expenditure side, the continued plunge in fixed capital formation was the main drag on growth. At the same time, some acceleration in growth was observed in household consumption and the change in inventories continued to add to growth. Final domestic use increased by 0.3% in Q3. But the growth contribution from net exports turned negative in the third quarter, due to the slowing decrease in import and the virtually unabated dip in export, and this was the decisive factor behind the overall decline in GDP.
On the production side, the services growth could not offset the negative effect of plummeting agricultural output, the deepening of industrial recession, and the shift from construction growth into decline.
In the first three quarters of 2024, GDP grew by a meager 0.6%.

30.10.2024. GDP: shocking growth numbers

According to the first estimate, unadjusted GDP was down 0.8% in the third quarter of 2024, while the seasonally and working-day adjusted volume decreased by 0.7% in annual terms. Compared with the previous quarter, GDP fell by 0.7%, the worst growth outcome in the EU according to the data known so far. In the first three quarters of 2024, the volume of GDP edged up by 0.6%.
On the production side, the combined growth contribution of agriculture, industry and construction was about -2% in the third quarter, according to the CSO, while the ability of the services sector to offset the drag by the primary and secondary sectors was much more limited than expected. A deceleration in services raises the possibility that on the expenditure side, it was not just the continuing fall in investments that weighed on growth but private consumption also failed to gain additional momentum in the third quarter – it could even weaken instead, despite the strong real wage growth, possibly due to the contradictory trends on the labor market.

03.09.2024. GDP: amid consumption expanding further, the fall in investments accelerated in Q2

The second estimate confirms that the unadjusted GDP was up 1.5% in the second quarter of 2024, while the seasonally and calendar-adjusted GDP volume climbed 1.3%. Compared to the previous quarter, by contrast, the GDP contracted by 0.2%.
On the expenditure side, the growth was still mainly supported by private consumption, which grew at a slightly accelerated rate of 4%. Fixed capital formation, on the other hand, fell by more than 15%, up from 7% in Q1. Nevertheless, overall final domestic use was up 0.7%, following six quarters of continuous decline, due to a surge in inventories. Despite this modest growth, import continued to fall, even if at a much slower pace. Thus the positive growth contribution of net exports weakened considerably in Q2.
On the production side, economic growth was still mostly driven by services. Industrial outputis still on a decrease and agricultural output started to contract as well.
On the expenditure side, the change in inventories will probably support growth, alongside consumption, but the growth contribution of net exports is likely to become negative in the second half of 2024.