The volume of industrial production dropped in December 2023 by 13.7% year-on-year; based on working-day adjusted data, it declined by 8.7%. The significant difference compared to the raw data is that there were two fewer working days in December 2023 than in December 2022. According to seasonally and working-day adjusted data, industrial output was 0.3% lower than in November 2023, the latest report released by the Central Statistical Office (KSH) shows.
Production volume fell in December 2023 in the great majority of the subsections; it was at its highest rate in the manufacture of coke and refined petroleum products. In 2023, overall, the volume of industrial production was 5.5% lower than in 2022.
The results mean industrial production fell for the third consecutive month since October, with the November contraction put at 2.3%. The decline trend shows that monthly production figures fell in four of the six months of the second half of last year.
Indeed, industrial production has been on the decline since mid-2022, and the sector now lags well behind the trend from before the coronavirus crisis and could not reach the pre-COVID peak of four years ago.
The central role in the poor performance can be attributed to the weakness of the export markets, which is indicated by the fact that we have been seeing sluggish export figures in the foreign trade balance for some time.
A more comprehensive picture will be available when the detailed data is published next week. Based on the current KSH announcement, all that can be said for sure is that December 2023 saw growth in just three of the 14 manufacturing industries on an annual basis. The decline in vehicle production, which was still performing well at the beginning of 2023, may have contributed to the weakness.
Putting the figures into context, the business news website Portfolio notes that the statistics were worse on just three other occasions: in 1991-92, when the country’s entire economic structure was altered after the end of communist rule, and many state-owned companies were closed; in 2009, the year of the global credit market crisis; and 2020 at the outset of the coronavirus epidemic. The yearly average decline of 5.5% in 2023 was one of the weakest years since the regime change.
Regarding the industrial production data, the volume of output decreased by 8.7% on an annual basis in December, according to data adjusted for the working day effect. This value is even worse than the analyst consensus of -7.8%, said János Nagy, Erste Bank’s macroeconomic analyst. In line with European trends, industrial output decreased by 0.3% on a monthly basis. The end of the year is typically not a time of record production, so the rebound after the fall in November is still to come, the analyst says.
According to Nagy, the generally still weak European economy also has an adverse effect on domestic output. Vehicle and battery production, which performed well for most of last year, was well below its capacity, he pointed out.
The Erste Bank analyst says the short-term outlook for industry remains rather hazy: economic indicators show only minimal signs of life across the continent for the time being. Just as in Hungary, positive real wage growth across Europe will be the driving force for growth this year. However, no other driving force has yet been outlined, which, he assumes, will also limit the perspectives for the manufacturing industry.
In the medium term, significant capacity expansions will enter production, primarily in the automaker industry, as well as in the field of battery production, which may result in a notable boost. However, Nagy believes that any ability to exploit the favorable effects will still depend mostly on the recovery of the global economy.
Better news came from retail sales, where turnover in domestic stores increased by 1.4% in December compared to the previous month. Such a significant increase hadn’t been seen since March 2022, when the impact of the coronavirus rebound resulted in an even better result. In December, fuel turnover also increased significantly by 4% compared to the previous month.
Total retail sales fell just 0.2% year-on-year, which is the best figure since November 2022. There is also a unique effect behind the current increase: the fuel price cap was implemented in December 2022, which means that people had been refueling at the market price for 12 months last December.
This means that, although retail sales have still not reached their pre-pandemic levels, they have moved away from the 2021 lows, at which they had been stagnant for a long time. However, when looking at the year as a whole, the picture is not rosy: in 2023, retail sales fell by 7.9% from 2022.
This article was first published in the Budapest Business Journal print issue of February 9, 2024.
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