Economy 11 March 2020, 11:35am

Manufacturing, tourism hit hardest by coronavirus in Hungary

Portfolio

An increasing number of Hungarian manufacturing businesses have cut production substantially after not receiving raw materials or parts form China, and the effects of the North Italian quarantine are also beginning to be felt. Meanwhile, tourism is going through a major shock as foreign visitors are cancelling trips and Hungarians are also not very active. Several hotels have introduced cost and hiring freezes, while some are sending employees on holiday. The service sector is still holding its ground and will only face a major shock ig Hungarians become overly cautious or if strict epidemiological measures and quarantines are implemented.

According to Péter Futó, President of the Confederation of Hungarian Employers and Industrialists (MGYOSZ),

Hungarian businesses are now definitely having problems due to the coronavirus.

In manufacturing, a shortage of parts and components is preventing production. Futó told Portfolio at a press conference on PwC's recent CEO survey.

Manufacturing

Speaking to employees at domestic manufacturers, Portfolio has ascertained that some companies were forced to reduce output after not receiving raw material shipments form China. Substantial production outages have now reached Tier1 suppliers as well, while the effects of the Italian situation are only beginning to make their impact.

Moreover, executives expect the situation on Italy to become even worse, which means other European countries will have to brace for a further slowdown or decrease in manufacturing. Certain products simply cannot be made without the materials and parts that are now not arriving from China. According to our sources, several of the biggest manufacturers in Hungary could soon be affected by the shortages.

As an indication of ripple effects, Hungary's purchasing manager index fell near the 50-point barrier, the dividing line between growth and recession, in February. PMI has not been this low since 2013. Managers have reported shortages of parts from Asia (largely China), Chinese raw materials, capacitors, sheets, moulds, bottles, passive electronic components and protective equipment.

Services

The service industry, meanwhile, could be shaped by opposing processes. Many businesses are ready to introduce home offices if required as the conditions are largely in place. The service sector faces lesser challenges compared to manufacturing as it typically does not depend on intact supply chains for its operation.

However, should the situation turn to the worse, certain services including movies, theatres and sports events could be hit hard as they depend on domestic demand. Also, unlike in manufacturing, lost revenues will be much harder to make up once business returns to normal as people are unlikely to storm movie theatres to catch up.

Tourism

The tourism industry is bearing the brunt of the coronavirus epidemic. Transportation declined globally even when the virus was only spreading in China, controls are tighter, and various travel bans have been introduced. These measures have increased in numbers as the virus was spreading, reaching Hungary's tourism industry as well. Hotel employees have reported employees being sent on holidays and hiring and budget freezes implemented. Occupancy rates are presently much lower than anticipated even a month ago, so revenues will probably also be far behind plans.

As the virus began spreading faster in Italy, occupancy rates in Hungarian hotels plummeted. Multinational corporations have introduced tight measures such as travel bans for employees, which also led to a high number of cancellations.

At present, we are at less than half the target regarding occupancy rates

a source working in a Budapest hotel told Portfolio.

According to an n unnamed executive, an increasing number of businesses forbid employees from travelling abroad, and not just to secondary infection nodes, so the effects have reached Hungary as well. Business development trips are also being cancelled, postponed or taken care of using video conference, phone and email, the source said.

Retail trade

Retail trade picked up as a result of the virus in February and March in Europe and in Hungary as well as people stockpiled certain durable food types, leading to a brief period of empty shelves in shops and a sustained increase in delivery times at online stores. It should be noted that revoking the Sunday ban on trucks in Hungary indicates that a shortage of goods was also on the cards.

Retail trade has thus been positively affected by the coronavirus so far, but experts warn that this was not extra consumption but just early consumption and could result in lower sales volumes after the epidemic ends.

Cover photo: Getty Images