INSTANT VIEW - Analsyts address collapse of Hungary's industrial production

Gergely Suppan, Takarékbank, Budapest

Restrictive measures, production stoppages, collapsing demand and disruptions in supply chains relating to the coronavirus pandemic have caused a never-before-seen downfall in industrial production which has surpassed all expectations.

Industrial production has practically fallen back to its level during the 2009 crisis. On a 2015 basis, IP was down 27% and it dropped 10.7% over 2010. 

Industrial production could rebound sharply as soon as May, as manufacturing restarted at every local vehicle producer and some of the plants launched second shifts in mid-May. Demand for cars can pick up as the majority of European countries are gradually reopening. New passenger car registrations dipped by 97-98% in some countries in April due to curfews and the temporary shut-down of car dealerships. 

The recovery in demand could be gradual, though, due to a jump in unemployment, wage cuts and consumers' cautiousness. At the same time, deferred demand can reappear later on therefore we expect a gradual pickup in industrial production in the remainder of the year, which could be fuelled by the likely implementation of new capacities, particularly in relation to battery production. 

A new wave in the coronavirus pandemic would seriously dampen recovery, though. Owing to the higher preparedness of the health care sector, the acquisition of personal protective gear and the expected therapeutic use of some promising drugs we do not expect as tight restrictions as in the last few months. 

Industrial production is expected to drop by 6-7% this year, but thanks to the base effect it could grow by as much as 12-13% in 2021. 

Péter Virovácz, ING Bank, Budapest

The contraction in April was the sharpest of all times (at least since industrial production is recorded as it is now), but it is also unprecedented that IP fell in monthly terms in two consecutive months. 

Although a lot of production companies re-launched manufacturing in mid or late April, this was insufficient to make up for the suspension over the previous weeks. Several companies switched to the production of health care equipment (e.g. masks), but it was still not enough to avoid collapse. 

The good news is that a correction can be expected in May, as more and more companies restarted production. However, we should not expect the early 2020 production levels to be reached any time soon, as manufacturing is often done in only one shift where it had been conducted in three shifts. The reason behind this is the lingering disruption of supply chains and diminished demand. 

Gábor Regős, Századvég, Budapest

The May IP print will be more favourable than in April, which is also suggested by sentiment indices. The year-on-year figure could be well behind the base period's data, though. The gradual resumption of vehicle manufacturing (not at full capacity yet) is likely to be reflected in industrial production figures, as well. 

Orsolya Nyeste, Erste Bank, Budapest

Details of the figures are not available yet, they will be released on June 12. According to a short comment published by the CSO, “Out of the largest weight carrying subsections in manufacturing an outstanding fall has been observed in the manufacture of transport equipment, while the manufacture of computer, electronic and optical products, as well as the manufacture of food products, beverages and tobacco products declined to a lesser degree. The output grew only in the manufacture of basic pharmaceutical products and pharmaceutical preparations”.

The strong decline of both the monthly and yearly performance was due to negative effects caused by the epidemic crisis that might have had the strongest impact in April. Important car manufacturers were closed for the majority of the month. They have gradually reopened since the end of April, as the lockdown was eased, however only with shortened shifts. We expect a mild improvement in the coming months, however uncertainties are still strong, as external demand would only slowly revive. Based on the April poor data, contribution of the sector to GDP growth is to worsen rather significantly in 2Q 2020.

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