Industry was Back on its Feet by Yearend
The latest industrial data suggests the sector contributed to the Hungarian economy to a greater extent than previously thought. At the same time, however, the World Bank has lowered its prognosis for 2021 GPD growth for the country. The same report also finds this year’s global economic outlook is rather uncertain due to the various possible scenarios raised by the pandemic.
The volume of industrial production grew by 3.5% year-on-year in November 2020 according to crude data released by the Central Statistical Office (KSH), up from the 0.6% year-on-year increase registered in October and beating market expectations of 3.3% growth.
Based on working-day adjusted data, production rose by 1.6%. The decrease was 1.2% compared to the previous month according to seasonally and working-day adjusted data.
The manufacture of transport equipment, having the largest weight in the sector, as well as the manufacture of computer, electronic and optical products increased. However, production volume dropped in the majority of the manufacturing subsections, with declines also recorded in the manufacture of food products, beverages and tobacco products.
When looking at the nearly full year data for industrial production, it unsurprisingly reflects the negative effects of the coronavirus pandemic: in the first 11 months of the year, production was 7% lower than in the same period of 2019.
The data does show an encouraging tendency, though: industrial production in November (according to seasonally and working-day adjusted indices) grew by 63% compared to the nadir of April.
In the fourth quarter of 2020, industrial output seemed to have stabilized and may have slowed down the GDP contraction, analysts commented on the KSH data. Industrial production contributed a 4.2 percentage points deterioration to the annual growth rate of the Hungarian economy in the second quarter of 2020, and 0.4% in the third quarter.
Stabilization of Hungary’s industrial sector could continue in the coming months, said Takarékbank’s head analyst Gergely Suppan. Production was able to increase on an annual basis in the fourth quarter of 2020, partially due to the lower base of the previous year, partially due to the calendar-effect, he emphasized.
Thus, industry is likely to contribute to annual GDP growth by as much as one percentage point in Q4 2020, he said, adding that this will significantly moderate the setback caused by the restrictions introduced in the second wave of the pandemic.
He added that delayed consumption also shows in the latest data, so he expects a gradual livening in industrial production in the coming months, which is also supported by deploying new capacities in the near future.
While the annual decrease might have been around 5.5-6% in 2020, this year, due to the low base effect and the new capacities, an increase of 14-16% is not impossible, he said, adding that this might mean a contribution of more than three percentage points to GDP growth in 2021.
Industry has put its worst period behind it, opined Gábor Regős, head of the macroeconomics division of think-tank Századvég Gazdaságkutató. He also noted that the effects of the second wave was not as severe as those of the first in the spring. However, he thinks that a rearrangement among the sub-sectors of industry is likely to happen, depending on which companies will be the losers and the winners of the pandemic situation.
He also noted that December’s industrial data, expected to be released on February 5, will mainly be influenced by the length of the yearend halts in production, while in 2021, the external environment and the post-pandemic recovery will shape the industrial output.
Although industrial production decreased on a monthly basis in November, there is no reason to worry, commented ING Bank head analyst Péter Virovácz. However, he added that in the fourth quarter of the year, Hungary’s GDP might have contracted compared to Q3 as, in spite of the better-performing industry, the suffering service sector could have seriously impacted economic growth in 2020.
In the meantime, the World Bank has released its global economic outlook for 2021, in which it cut its GDP forecast for Hungary. The bank now expects GDP here to grow by 3.8% in 2021, down from the 4.5% expansion it predicted last June.
For 2020, Hungary’s GPD is estimated to have fallen by 5.9% according to the organization, which would be a 0.9% percentage point bigger drop than it earlier said. As for 2022, the organization predicts 4.3% GDP growth for Hungary.
The World Bank said that economic activity in Europe and Central Asia (ECA) is estimated to have contracted by 2.9% in 2020 in the wake of the disruptions related to the COVID-19 pandemic. Economies with strong trade or financial links to the euro area and those heavily dependent on services and tourism have been hardest hit.
Due to a resurgence of COVID-19, the pace of recovery in 2021 in the region is projected to be slower than originally anticipated, at 3.3%. Growth is then expected to rise by 3.9% in 2022, as the effects of the pandemic gradually wane and the recovery in trade and investment gathers momentum.
Numbers to Watch in the Coming Weeks
November construction data is release on January 14, and the KSH will also publish inflation figures for December and for the entire 2020 on the same day. On January 15, we will find out how the heavily impacted tourism sector performed in November.
This article was first published in the Budapest Business Journal print issue of January 15, 2021.
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