The biggest blind spot in the Hungarian economy for a long time

In EUR terms, exports decreased by 4.1% year on year in August. The last time we saw an even lower figure was two years ago, but we should also note that occasionally there were even worse months.

Imports also contracted 0.5% in August, but the trade surplus was still “just" EUR 270 million in the last summer month, which is 60% of the surplus recorded a year earlier.

What’s behind this?

The weak performance is not surprising after all. We have seen a warning sign earlier this week, when the stats office reported an unexpected decrease in industrial production for August. The reason behind that (besides smaller production suspensions and reduced output) was mainly a halt in production at Audi’s local plant in Győr, northwest Hungary. This mattered a lot because analysts were expecting Audi’s newly added capacity to give a boost to the sector. This way, though, we could suspect that trade figures will not be too bright.

The weak performance of the industry (and exports) also means that the September readings need to be robust so that this “skipped beat" would not put a big dent into Q3 GDP. Fortunately, there is a very good chance of that for we should expect the new production capacity to finally make a positive impact on the figures by early autumn. Although a palpable downturn in Europe’s economic growth will sooner or later leave a mark on Hungary’s export performance, the business cycle indicators do not suggest such an abrupt halt is likely in the short term. Therefore we believe August simply turned out to be this “empty". Large production reports either came in early or suffered a slight delay, causing weak readings for the end of the summer. Regardless, the extent of the recovery in September will be crucial.

There is a generalising lesson we can learn from the current figures. Indeed, this is not the first time stoppages at car manufacturers caused a surprise, although such things happened mostly towards year-end in the previous years. The fact that the structure of the industry has changed so drastically and that the weight of a few carmakers going on “vacation" from time to time is getting ever larger in production could make us more cautious at judging how strong economic cycles are.

The industry fared better in the spring and especially in June and July that how we expected it would at the beginning of the year. A large share of this positive surprise, however, was obliterated by the August print. The question is whether a similar production suspension will follow in any of the car manufacturing facilities at the end of the year. The good news is that even there is such stoppage we will not have to ponder if the sector will turn into recession or not. The worst case scenario is that our growth outlook gets more cautious.

In the following months we expect favourable impacts from the last large carmaker capacity boost. In view of what we have witnessed over the past few months the upside risk is that this capacity increase will have a pass-through effect on the supplying sectors too. After that, however, additions to growth will likely come in smaller portions as we have no information that large-scale investments in the auto industry will take place any time soon. Another sign pointing to deceleration is the weakening European business cycle therefore we expect export growth in the Hungarian economy to be smaller in 2015 than this year.

• Tags:
• KSH,
• export,
• import,
• economy,
• trade