Industrial Output Disappoints in November

Automotive

Following a rebound in October, the volume of Hungary’s industrial production dropped again in November, disappointing analysts who are now mainly expecting a weaker fourth-quarter performance.

The volume of industrial output grew by a moderate 4% on a year-on-year basis in November, following a 5.9% increase in October. According to the latest report released by the Central Statistical Office (KSH), the working-day adjusted data was 3.5%.  

The report indicates that the majority of manufacturing subsections contributed to the increase. The manufacture of transport equipment, representing the largest weight, grew at a similar rate to the previous month. The manufacture of computer, electronic and optical products went up remarkably, while the manufacture of food products, beverages and tobacco was also higher than a year earlier.

In the first 11 months of this year, production was 3.5% higher compared to the same period of the previous year. The KSH data shows that industrial output in November – according to both seasonally and working-day adjusted indices – was 1.1% below the level of the previous month.

Growth ‘Here to Stay’

In spite of the poorer-than-expected figures, the Hungarian government is confident that the overall strong performance will continue. A government official told state television news channel M1 that the data showed Hungary in second place among the Visegrád countries and the 24% increase in Hungarian industrial output since 2014 was twice the European average. Gyula Pomázi, Deputy State Secretary at the Ministry of Information and Technology, told the channel that the positive industrial data indicated that growth was here to stay “in some form”.

The fresh figures, however, are lower than what analysts had previously expected. “Industrial production dropped on a monthly basis, and as the yearend holiday shutdown affected data, we expect an overall weak fourth-quarter performance,” Péter Virovácz, head analyst with ING Bank said in a note.

He pointed out that industry continued its monthly rollercoaster ride in the 11th month of the year. He also noted that the moderate 3.5% calendar-adjusted growth matches the average performance of January-November.  

“Overall, the recent reading fits into the picture of a trend-like deceleration,” the ING analysis stated.

The usual yearend shutdowns are also bad news, Virovácz emphasizes. Although the KSH commentary suggests that all of the main sub-sectors expanded on a yearly basis, “however, it is quite clear that without a strong performance in any of the key sub-sectors (like car manufacturing, electronics and the food industry), an okay-ish expansion is not enough to provide strong overall industrial figures. Looking forward to December, the usual yearend shutdowns won’t help towards the overall Q4 performance, suggesting a weaker growth rate and thus a lower contribution to GDP growth. Our view is backed up by soft indicators, too,” he says.

Downside Risks

“We expect an average growth rate of 3.5% in industry in 2018, but the new year might bring slightly stronger performance with a growth rate of roughly 5% year-on-year on average on the back of newly built capacity. However, our forecast in 2019 is accompanied by downside risks, mainly stemming from the gloomy eurozone outlook,” the ING note concluded.

Takarékbank analyst Gergely Suppan also notes that the industrial output underperformed expectations in November. He partially attributes the weaker performance to new legislation on vehicle emissions that caused turmoil for several car manufacturers, with several models temporarily disappearing from the line.  

However, with new production capacities to open in Hungary, industrial output is expected to liven up again, the analyst says. Although he notes that the economic environment in Europe poses some risks to this, this can partially be balanced by strong domestic demand. All in all, he expects a faster expansion this year due to the growing capacity of car manufacturers.

Dávid Németh, head analyst at K&H Bank, also emphasized that the performance of Hungarian industry is volatile. Due to data from the previous months, it seems that the automotive industry could not contribute effectively to the industrial output; on the contrary, it rather put a restraint on it. On the whole, industrial output might have been extended by 4% on a yearly basis in 2018, and he forecast a similar figure for 2019, Németh said.

Numbers to Watch in the Coming Weeks

Hungarian minimum wages and general private sector salary rises have been at the center of attention for a while, and we will find out about average earnings between January and November 2018 on January 22, when the Central Statistical Office publishes the fresh data. On January 30, employment and unemployment figures for the October-December period will be released.  

Bence Rétvári, Parliamentary Secretary of State of the Ministry of Human Resources (EMMI), holds a press conference on the 2019 pension increase on January 4, 2019. “This year, pensions will be increasing by 2.7% ...  by an annual HUF 42,000 in the case of an average pension,” he said.

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