Even German disruption cannot break back of Hungary's industry

January 8, 2019, 9:30 am  english version Hungarian version  
Hungary’s industrial production decreased by 1.1% month on month in November, according to data adjusted seasonally and for working days, down from 2.0% in October, while the annual growth rate came in at 3.5%, adjusted for working days, the Central Statistical Office (KSH) reported its preliminary figures on Tuesday. This suggests that despite feeble industrial performance in Germany in October (-0.8% m/m) and November (-1.9% m/m), Hungary’s industry was not blown to pieces and production continued to grow, albeit at a muted pace.

According to preliminary data released by the KSH on Tuesday, the volume of industrial production grew by 4.0% year on year, according to unadjusted figures, and by 3.5%, according to working-day adjusted data. So far, we have the following information to go by:
  • The majority of manufacturing subsections contributed to the increase.
  • The manufacture of transport equipment representing the largest weight grew at a similar rate to the previous month. The manufacture of computer, electronic and optical products went up remarkably, while the manufacture of food products, beverages and tobacco was also higher than a year earlier.
  • Industrial output in November - according to seasonally and working-day adjusted indices - was 1.1% below the level of the previous month.
  • In the first eleven months of this year, production was 3.5% higher compared to the same period of the previous year.

The unexpectedly poor German IP print for November (-1.9% m/m, the sharpest fall since the summer of 2015) reaffirmed views that this is not merely a hiccup on the Germany market caused by the automotive industry, rather a process rooted in a wider base. Analysts at ING bank believe there a chance that Germany was close to technical recession in the second half of 2018 (GDP contraction in two consecutive months), but we’ll have to wait a few more days to have a clearer picture on this.

At face value, today’s industrial production data has clearly increased the risk of a technical recession in Germany in the second half of 2018. Watch out for tomorrow’s trade data
,they said.

The analysts warned that another disappointment, combined with the high inventory build-up in 2Q and 3Q, would clearly increase the likelihood of a technical recession. On the other hand, private and public consumption still have the potential to offset recession forces, they added.

"Looking ahead, however, even a technical recession should be nothing to be too worried about.
"It should be technical, without any significant marks on the labour market."

The analysts stressed that in fact, there are still plenty of reasons to remain optimistic, even for German industry:
  • despite the recent deflation of new orders, order books are still richly filled and
  • companies still report assured production close to record highs and
  • while capacity utilisation has dropped to its lowest level since the third quarter of 2017, the lack of equipment still is a more limiting factor to production than the lack of skilled workers.

In addition to this, the recent pick-up in orders in the automotive industry and favourable financing conditions in the entire economy also bode well for at least solid industrial and investment activity in 2019.

Even If Germany did slump close to recession temporarily the Hungarian economy apparently got through it without much harm, thanks in part to the boosting effect of EU transfers and the momentum of domestic consumption.

Front page photo by MTI / Tibor Rosta

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