Unprecedented: Hungarian industry contracts for the second year in a row

Despite hopes in October that the final quarter of 2024 would bring some growth to the industry, the rest of the year has been disappointing. The sector as a whole continued its downward slide that began in mid-2022. So much so that the last time we saw a weaker performance than in December was almost four years ago, during the coronavirus pandemic lockdown.

One reason for the weakness is the general suffering of Hungary's export markets. The economies of several of our trading partners (e.g. Germany, Austria) have contracted over the past year, reducing overall demand.

Another reason why the domestic industrial structure, which is focused on vehicle production, has not benefited is that the German automotive industry has lost competitiveness and the transition to electric cars has stalled.

Overall, industrial production in 2024 was 3.9% lower than in the preceding year. This means that the sector contracted for the second year in a row. This is something we have not seen since the change of regime. Indeed, the industry's suffering is underlined by the fact that only once before, around the financial crisis in 2009, has the combined fall in output over two consecutive years been greater than this year.

The outlook for this year is very mixed. On the one hand, several major investments are about to be delivered, and when they come on stream we will be able to connect to global production chains and world trade via new channels. Moreover, there have been capacity expansions in recent years that have certainly not reached full production - the sharp decline in battery plant exports is a prime example.

But it is precisely this that raises question marks. With demand for domestic exports particularly weak due to the slump in our external markets, it is a big question when the available supply potential will meet sufficient demand.

European manufacturing indices offer some hope, but the fact that the German government has downgraded its GDP growth expectations for this year to a stagnant 0.3% after two years of recession does not promise much of a recovery in the short term.

In the short term, the fact that the usual year-end shutdowns, maintenance and downtime may have been longer than usual, which certainly accelerated the decline in general deflation, may provide some short-term stimulus.

Cover image (for illustration purposes only): Getty Images