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Industry Endures Unprecedented Collapse in April

The coronavirus pandemic has taken its toll on all economies: in the EU, the average setback in industrial output was 27.2% in April on an annual basis. Hungary was among the countries hardest hit by the crisis: industrial production was down by 36.8% from a year ago, and by 30.5% from the previous month.

As the Central Statistical Office (KSH) reported, Hungarian industrial output plunged by an annual 36.8% in April and shrank by a massive 30.5% from the previous month.

The fall was heaviest in vehicle production, while production of computers, electronics, optical products and food, beverages and tobacco declined to a lesser extent, the KSH said.

The output of pharmaceuticals, however, increased. Working day-adjusted data showed April output falling by 36.6% year on year. The volume of industrial export dropped by 43% year-on-year.

Transport equipment exports, representing a 15% weight within export sales in manufacturing, fell outstandingly, by 77%, while exports in manufacture of computer, electronic and optical products (accounting for a 19% weight of the overall total) declined by 23%.

Industrial domestic sales decreased by 18.6%, within which domestic sales in manufacturing were 25% lower compared to the same month of the previous year.

In the first four months of the year, output was 9.2% lower than in the same period last year.

Analysts in shock

Industrial production contracted way above expectations, such a huge setback is unprecedented, Gergely Suppan, head analyst at Takarékbank, commented on the Central Statistical Office (KSH) data.

He thinks, however, that there is a possibility for the sector to pick up sharply in May. He said demand might pick up gradually due to soaring unemployment, wage cuts and cautious consumer spending.

According to him, a possible second wave of the pandemic might further delay the recovery of the industry; however, due to a higher level of preparedness in the healthcare sector, a sufficient supply of medical appliances and some promising drug trials, closures similar to the previous months are not expected.

Suppan expects a fall of 6-7% in the industrial production this year, followed by a notable, 12-13% growth in 2021. ING Bank analyst Péter Virovácz said that April data showed the largest drop ever seen in industrial production and added that a double-digit monthly drop for two consecutive months had been unprecedented.

Although he thinks that the reopening factories and production facilities have not been able to counterbalance the lockdown, May will likely to bring a correction.

However, he does not expect the production level seen at the beginning of the year for the time being. K&H Bank analyst Dávid Németh said that with April’s sharp drop, industrial performance was only 73% of 2015 levels.

2nd Wave Fear

For now, April is seen as the lowest point, but a second wave of the pandemic, if one emerges, could change that, the analyst added.

The same fear is being reflected in the latest forecast of the OECD, which says that Hungary’s GDP might fall back by 8% this year, but if there’s a second wave of the pandemic, the setback could be as high as 10% (for more on this, see our detailed report on page 5).

However, not everyone is as pessimistic as the OECD: London-based analysts say that the value of Hungary’s GDP will reach its pre-crisis level by the end of 2021.

According to Morgan Stanley, Hungarian GDP will fall back by 6.7% this year but will bounce back again in next year and will produce a 4.6% growth. With this, analysts at Morgan Stanley said that their GDP-forecast for Hungary for 2020 is 2.6% lower than the consensus but is also 0.6 percentage points above the expectations for 2021.

Morgan Stanley analysts add that the growth trajectory of Hungarian GDP will still be determined by domestic consumption, as investments are only likely to liven up from the second half of 2021. On an even more positive note, the April lockdowns had little impact on the construction sector, as the latest KSH data shows.

Output of Hungary’s construction sector edged down 2.1% year-on-year in April; the decline slowed from a 3.4% drop in March and was just a fraction of the contraction seen in the industrial sector. KSH noted the impact of a high base on the figure: in April 2019, construction sector output soared 39.7%.

Numbers to Watch in the Coming Weeks

A relatively calm period lies ahead in the next couple of weeks when it comes to macroeconomic releases. On June 29, KSH will publish employment and unemployment figures for the March-May period; the data is expected to highlight all the negative effects of the coronavirus pandemic, following a slow but steady increase in the unemployment rate over the past months.