Poor industrial output in July raises doubts about reaching annual growth targets

Pundits were somewhat caught by surprise by the latest statistics on Hungarian industrial output, which dropped by no less than 4.7% in July compared to the same month a year earlier, according to Hungary’s Central Statistical Office (KSH). 

The shock factor stemmed from the false expectation that the manufacturing purchasing manager index (PMI) figures hinted at a steep jump for July, whereas August promised to bring about a standard downwards curve, due to summertime production routines. Now that output did so poorly in July, August could be even worse and that raises doubts about whether annual growth targets can be realistically maintained.

“At first glance the official argument – according to which the sharp decline is attributed mainly to fewer working days – may sound like window dressing. However, considering that there are 20-21 business days per month, two days can make a lot of difference, namely around 10%. Taking that adjusting factor into account, we have a rosier picture meaning a drop of mere 0.1%,” Gábor Dunai, macroeconomic analyst at OTP Bank said.

More interesting though is a check of the latest figures against the performance of previous months. After the relatively bad statistics of Q1, a correction came in April, but since then industrial output has again been falling from month-to-month, which is less than promising, the expert noted.

It should give rise to even more worries that volume is down in the food, chemical and consumer electronics sector alike, not to mention vehicle manufacturing, the economy’s prime growth engine. Even though the latter did produce positive figures for May and June, no real breakthrough was witnessed and in July output volume there also went down.

“The thing is that the German processing industry has been rather stagnant since its peak early this year and as long as no strong impetus comes from there, we can only dream of an upward spiral around here,” Dunai said. Indeed, July data made German analysts’ jaws drop as they were forced to digest a 1.5% drop of their countryʼs industrial output against projected growth of 0.2%. Such a decline had not been experienced in Germany since August 2014.