Cars put economy on a roll

The first quarter of 2013 finally produced positive growth figures, something the government has been awaiting for a long time now. The Central Statistics Office announced the first three months of the year produced 0.7% growth in gross domestic product from the preceding quarter, while contracting 0.9% from the same time span in 2012. The preliminary figures mean that Hungary has technically recovered from the recession of last year.

In achieving the result, the automotive industry played one of the most significant roles. Even though the aggregate volume of industrial output contracted by 2.9% in March from the corresponding period of 2012, car manufacturing produced the biggest growth, up 10.2% from last March and up 12% in the first quarter compared to the first three months of last year.

“Hungary produced the highest (…) GDP growth in central Europe thanks in large part to the driving factor of investments in the automotive sector which made Hungary’s industrial output an overachiever in the region,” JP Morgan commented.

Driving growth

The government has maintained that, despite ubiquitous analysts’ forecasts of continued recession in 2013 or stagnation at best, the previously determined 0.9% growth target for this year will be achieved and might even be exceeded. The cabinet continues to point towards the automotive industry as the catalyst, bringing new investments and creating new jobs in the process.  

“There are currently 160,000 more people in work than they were in 2010 and car makers’ expansion played a significant role in achieving the goal,” state secretary in charge of foreign trade relations Péter Szijjártó said when inaugurating an add-on to turbocharger maker BorgWarners’s site in Oroszlány.

The U.S. company is just one of several in the past months to complete or launch new developments. These ventures are also a boon for the still-struggling construction sector. A survey by the ÓBUDA Group consultancy shows that out of the 10 biggest real estate investments to be concluded between 2013 and the end of 2015, car markers or their vendors have commissioned five.

The expansion announcements are also starting to sway otherwise dubious analysts that the government’s economic targets might not be as far-fetched as previously thought. The JP Morgan investment bank stated that the car industry might be a factor of such significance that it could assure positive growth for the entirety of 2013. Other London-based analysts published similar views.

Not at home

Unsurprisingly, the overwhelming majority of the vehicles produced in the country are shipped abroad. In fact, domestic demand for vehicles continues to drop, with people are using their cars considerably less, much to the chagrin of fuel distributors.

Data from the Hungarian petroleum association MASz revealed that there is a dropping tendency in fuel consumption. Last year saw sales of 2.75 billion liters, down 4.2% from 2011.

As a result, several fuel distributors have decided to streamline their operations to adjust to the circumstances. Shell had already announced it will close 34 stations by the end of the year, but the head of its local unit Balázs Erényi told the daily Népszabadság that the total number of closures would likely reach 50.

Shell isn’t the only one affected. Austria’s OMV, Italy’s ENI as well as Hungary’s MOL have either closed or are planning to sell several stations in response to dropping sales. It is also common to reduce expenses by shortening business hours, for instance, by keeping stations closed at night.

Although the reduction of registry taxes last January led to a high base figure, the number of new cars purchased this year also showed a sizable drop. According to the Hungarian Vehicle Importers Association, there were 12,559 new vehicles entered in the record in Hungary during the first quarter, a 10% drop on the year.

The association did point out, however, that figures from the DataHouse car market data provider started showing signs of recovery with a 6.3% month-on-month increase in March, when 5,066 new vehicles were purchased.