Strong industrial data may put upward pressure on Hungary GDP forecasts, says City

Analysis

A "surprisingly strong" industrial output gain may put upward pressure on current GDP growth forecasts for Hungary, London-based emerging markets analysts said after industrial production figures for September, up 3.9% on the previous month and thus far north of the consensus, had been released on Tuesday.

Economists at JP Morgan - who had expected a 0.2% month-on-month industrial growth for September - said that this is likely to have been "a one-off rise" following a significant 1.2% month-on-month drop in August, with the overall trend being one of stagnation since March.

"This upside surprise" reduces the chances of a second consecutive quarter of negative industrial growth in the 3rd quarter. "Indeed, our tracking exercise is now showing a 0.25% q/q annualized GDP gain in 3Q versus our previous expectation of a flat reading".

The outlook for the Hungarian economy remains "relatively bleak" given the ongoing contraction in domestic demand and now sharply slower external demand. The weakness in the October manufacturing PMI (48.2) and the slide in German manufacturing orders point to a weak IP trajectory in 4Q, although over-year-ago growth is likely to pick up in December on a large base effect, JP Morgan said.

"We forecast of a small GDP contraction (-0.2% q/q) in 4Q followed by stagnation in early 2012 ... However risks to our full-year GDP forecast of 1.2% (for 2011) are now to the upside owing to what appears to have been a stronger than expected third quarter", JP Morgan’s London-based economists said.

Analysts at Goldman Sachs gave the September industrial growth figures a mark 4 out of the possible 5 for the relevance to Hungary’s GDP, and +1 on a scale from -5 to +5 for surprise relative to consensus, with +1 indicating a "positive surprise" under the bank’s rating methodology.

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