Year-end data shows that Hungary’s industry had somewhat slowed down by the last months of the year: in November 2019, the volume of industrial output grew by 3.6% year-on-year. Based on working-day adjusted data, production rose by 5.7%.  

In the previous month, the unadjusted figure was 6.1%, while on a working-day adjusted basis, the output grew 6.4% from the same period of 2018.  

The volume of industrial export grew by 1.9% year-on-year in November 2019. Industrial domestic sales increased by 1.7%, within it domestic sales in manufacturing were 2.6% higher compared to the same month of the previous year.  

Within industry, production grew by 4.2% in the decisive weight (96%) representing manufacturing, at the same time it decreased by 4% in the small weight representing mining and quarrying and by 0.8% in the energy industry (electricity, gas, steam and air-conditioning supply). In January–November 2019, compared to the same period of the previous year, industrial production increased by 6%.  

Downward Risks Still Exist

Analysts, being slightly disappointed by the latest industrial figures, have tried to figure out to what extent the worsening external environment held back production and whether this can be counterbalanced by domestic demand.

The November growth of the industry was partially held back by the working-day-effect. However, the Hungarian industry outpaced the weak European and especially German growth rate, mainly due to new capacities and the lively domestic demand.  

Further growth in manufacturing capacities might further enliven the Hungarian industry, while the European economic sentiment and the slowing growth rate of the global, mainly the Chinese economy carries downward risks, said Takarékbank analyst Gergely Suppan, adding that last year’s industrial growth could have accelerated to 6% last year from 3.5% in 2018. As for this year, he expects an industrial expansion of – seasonally and working-day adjusted – 4%.

ING Bank analyst Péter Virovácz noted that on a monthly basis, industrial output has now fallen for two months in a row, raising the question of whether the setback was temporary or whether adverse international trends have finally caught up with the Hungarian economy. In 2019, industrial output is likely to have grown by 6%, he said, adding that this could slow to around 4% this year.

The November data was slightly disappointing, admitted Erste Bank analyst Orsolya Nyeste, adding that changes in output could remain volatile in the coming months. In the short-term, the outlook is positive for the sector, but in the mid-term, uncertainties abound, she said, adding that output growth may slow from 6% in 2019 to slightly below 5% this year.

Core Inflation Stays Moderate

While industry showed a moderate increase at the end of last year, inflation hit 4% in December. Consumer prices were 4% higher on average in December than a year earlier. Significant price increases were measured over the last 12 months for alcoholic beverages and tobacco, motor fuels as well as food. In 2019, consumer prices rose by 3.4% on average compared to the previous year.

But although the headline inflation increased significantly, core inflation slowed a little, therefore the National Bank of Hungary (MNB) is likely to remain calm. According to KSH data, core inflation (which excludes unprocessed food, energy and administered prices) came in at 3.9% on a year-on-year basis in December, posting a 0.1 percentage point drop compared to the November reading.

“As the rise in consumer prices didn’t surprise the market or the central bank and was driven by one-off technical factors and supply-side shocks, we expect the central bank to look past the recent pick-up in the headline reading,” ING Bank analysts wrote.  

“In our view, we expect CPI to move above 4% but core inflation to continue its incremental slowdown. Amidst high volatility, we see headline CPI at 3.5% year-on-year in 2020 after the 3.4% average in 2019. Our core inflation forecast in 2020 stands at 3.8% year-on-year – almost flat compared to last year,” the bank said.  

Domestic consumption, investments and exports will drive the economic growth in 2020, analysts at Equilor Investment said in a recent press release. According to their forecast, GDP could grow by 3.8% in 2020 and economic growth could slow to 3.5% in 2021.  

Both investments and export growth are set to slow. Wages in real terms will continue to increase, but at a slower pace than before. The number of employed will stay at a peak level and firms in the corporate sector will continue to face labor shortages.  

Analyst Lajos Török said the MNB could well stick to an accommodative monetary policy in 2020, and might start tightening monetary policy only in 2021; before raising the base rate, it will first step back from its non-conventional measures, he added.

Numbers to Watch in the Coming Weeks

The year starts slowly regarding economic data releases: only two important figures will be published in the second half of January. First, employment and unemployment data for the October-December period will be out on January 29. Two days later, we will learn about the earnings Hungarians made between January and November last year.