Does good stock market performance affect GDP?
When evaluating economic indicators, it can be seen that stock market performance generally diverges from real economic performance, and the results of money and capital markets mostly do not characterize the actual economic processes.
In 2024, the Budapest Stock Exchange Index (BUX) performed exceptionally well compared to the overall performance of the Hungarian economy, achieving a significant growth of over 30 percent. This means that the companies listed on the stock exchange performed much better overall than the economy as a whole.
The outstanding performance of the BUX index can be explained by several factors:
Hungarian equities were undervalued in international comparison, making them attractive to investors.
The stabilization of the global economy and the improvement of international investor sentiment also favored the Hungarian market.
The listed companies, especially the “blue chip” stocks, are not tied to the Hungarian economy but have demonstrated regionally and globally recognized performance, which increased investor confidence.
The movements of the BUX were also influenced by the decisions of international investors, global economic trends, and exchange rates. The weakening of the forint made Hungarian equities attractive to foreign investors, which increased demand and prices.
In 2024, the performance of the real economy was low, inflation continued to stabilize at a high level, and the weakening of the national currency against other currencies worsened investment ideas, and GDP showed barely noticeable growth.
Thus, the Hungarian money market movements did not significantly improve economic performance.
In Hungary, low value-added sectors continue to develop, and companies do not participate in the life of the Hungarian stock exchange.
The unemployment rate remains low and consists primarily of people who are difficult to employ in the labor market.
High stock market returns do not incentivize the increase of real economy developments due to its low and risky return conditions.
A trend can be shown, which can also be shown worldwide, that the shares of almost any company are available to Hungarian small investors as well, which diverts capital from Hungarian real economy investments.
The yields on government bonds are decreasing, and this further worsens the sympathy felt for domestic investments.
Therefore, referring to stock market results cannot be used as an argument to describe the general state of the economy.
The weak correlation between the stock market and real economy indicators is not a new phenomenon.
Throughout history, for example, the correlation between the German stock index (DAX) and German GDP has always been low, given that a significant part of German companies are global players.
The industry composition of the largest German stock market companies shows significant differences from the German economy as a whole. Public services, transportation, the real estate market, and the construction industry, which play an important role in the German economy, are barely represented in the DAX. In contrast, the industrial, financial, and technology sectors receive a prominent role in the stock market index. With this, the German stock market companies essentially do not represent the companies operating in the fields of public services, transportation, the real estate market, and the construction industry, which have a significant weight in the economy, and which are barely represented in the DAX.
It can therefore be stated that the development of a country’s stock index slightly influences the direction of GDP development, and economic policy makers should primarily focus on directly impacting economic and social investments.